Genuine Savings: Leading Indicator of Sustainable Development?

Susana Ferreira and Jeffrey Vincent

Economic Development and Cultural Change, 2005, vol. 53, issue 3, 737-54

Abstract: The World Bank recently began publishing estimates of countries' "genuine savings": a comprehensive measure of net investment across all forms of capital (natural and human as well as produced). This article presents the first empirical investigation of the consistency of the Bank's estimates with the hypothesis that net investment should equal the difference between a country's average future consumption and its current consumption. Results show that the Bank's estimates are consistent only with weak versions of this hypothesis and then only for developing countries. Moreover, a simple autoregressive-integrated-moving-average (ARIMA) model outperforms any net investment measure, comprehensive or conventional, as a predictor of the difference between current and future consumption. In sum, the Bank's net investment estimates tend to move in the same direction as the difference between current and average future consumption in developing countries, but they have little value for predicting the magnitude of this difference.

Date: 2005
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