Do unpriced natural and ecosystem capital affect economic output? Growth regression analyses

Jang Ping Thia, Xinyu Kong and Jiaqi Su

Sustainable Development, 2024, vol. 32, issue 5, 4959-4976

Abstract: Services provided by nature and ecosystem capital are unpriced and their contributions cannot be observed through factor payments. Estimates of nature's gross domestic product contribution are thus based on bottom‐up extrapolations of local ecological valuations or various sectoral dependency assumptions. These estimates are hence partial and wide‐ranging. On the other hand, omission of nature and ecosystem capital in standard growth regressions potentially biases estimated returns to other factors of production. This paper incorporates various categories of natural capital and biodiversity into growth regressions, with annual data covering more than 100 economies over more than two decades. A range of econometric specifications are used, including fixed effect panel regressions, Arellano and Bond, and Pseudo Poisson Maximum Likelihood. The estimates point to natural capital, especially the narrower and specific ecosystem capital, having a sizeable positive elasticity of around one‐third of total gross fixed capital. Ecosystem capital is thus estimated to contribute around USD6–12 trillion (or 10–20 trillion in purchasing power parity terms) annually for the global economy. This estimated contribution is significantly higher than what is implied by existing stock valuations, underscoring the importance of ecosystem capital to sustainable growth.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:wly:sustdv:v:32:y:2024:i:5:p:4959-4976

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