Stranded human and produced capital in a net-zero transition

The pace of the net-zero transition required to meet the Paris Agreement objectives puts the value of existing carbon-dependent capital at risk of premature depreciation.1–3 A policy debate has emerged over whether such substantial financial loss affects market valuation and stability.4–6 Here, we quantify the current value of existing global human and produced capital, sector by sector, and compare the rate at which it naturally depreciates with that at which it would be required to depreciate to achieve climate targets. Comparison allows us to determine the human and produced capital value at risk across the economy by sector. We find that stopping the production of carbon intensive capital and the training of carbon intensive occupations in 2020 allows a better than 50 percent chance to achieve a 2°C target. However, achieving net-zero in 2050 implies capital value at risk approaching 50 T$, three quarters of which is human capital. We conclude that intervention in both the financial and educational systems may be warranted in order to reduce these risks, where training a workforce for occupations that may soon cease to exist could be avoided.

TESTING HECKSCHER-OHLIN-VANEK THEOREM BY USING NORMALIZED TRADE BALANCE APPROACH

The study described here introduces new approach for testing the Heckscher-Ohlin-Vanek (HOV) theorem based on the normalized trade balance concept. The intention was to include in the analysis all countries worldwide but due to the lack of data a certain number of countries had to be excluded. Overall 111 countries were observed according to region and income level for the year 2014. The HOV model was estimated using the sign test. It compared the expected sign of the normalized trade balance or net exports, according to the SITC 2 product classification, with the relative endowment of production factors intensively used in the production of a specific product. Production factors were divided into groups such as produced capital, labour force and natural resources further divided into forests, metals and minerals, oil, coal and gas, pastureland and cropland. Researchers in R&D per million people variable represented the impact of technological differences across countries. The results of the sign test have shown that the HOV theorem held in 55% of cases. The percentage of matched signs was highest for the non-OECD high income countries (75%) and lowest for the lower middle income and low income countries (below 50%).

Liberia

The Pro-Poor Agenda for Prosperity and Development 2018 to 2023 (PAPD) is the second in the series of 5-year National Development Plans (NDP) anticipated under the Liberia Vision 2030 framework. It follows the Agenda for Transformation 2012-2017 (AfT). It is informed as well by lessons learned from the implementation of the Interim Poverty Reduction Strategy 2007 (iPRS) and the Poverty Reduction Strategy (2008-2011). The fundamentals underpinning the PAPD are: i) Liberia is rich in human and natural resources; but ii) is deprived of development largely because its human capital lacks the knowledge to transform the natural resources into wealth—whether through farming, mining, fishing, or other productive ventures that require technology or financial investments. Consequently, Liberia is relatively rich in natural capital but relatively poor in relations to its peers in both human and produced capital. Moreover, because of a legacy of entrenched inequality in access to development opportunities, widespread infrastructure deficits and pervasive poverty have become the binding constraints to future growth and prosperity.

Sustainability Prediction Model for Capital City Relocation in Indonesia Based on Inclusive Wealth and System Dynamics

Based on inclusive wealth (IW), this paper evaluates the impact and sustainability of the Indonesian government’s decision to relocate the capital city from Jakarta to East Kalimantan in terms of economic, human, and environmental aspects. This paper develops an integrated prediction simulation model based on IW and system dynamics and sets three scenarios, depending on the expected population recovery in Jakarta and the increased immigration into the new capital city (NCC) from the nearby areas after the public sector relocates. The most reliable scenario projects benefit of USD 169 billion in IW in 2050, equivalent to 2.41% of the expected cumulative real gross domestic product (GDP) growth in Indonesia from 2021 to 2050. Regarding the sustainability of the relocation, the current investment plans are not sustainable, largely because of the negative impact on human capital, comprising the education and health capital caused by the income gap between Jakarta and the NCC, and due to depreciation of produced capital. This study makes a significant contribution to the integrated evaluation of capital city relocations for Indonesia and beyond, because no previous study of such relocations combines produced, human, and natural capital. This is the first policy evaluation to include the impact of migration on IW, which plays an important role in IW literature, because population is a key model factor.

Wealth and Sustainability

In 1974, it was a live question whether the exhaustion of natural resources, such as oil, would necessarily lead to the decline of economic activity. Solow showed that constant levels of consumption could be sustained if there is sufficient substitutability between produced and natural factors of production. Hartwick then proved that underpinning this result is a saving rule—set investment in produced capital equal to the value of resource depletion at each point in time. A large literature has shown that a comprehensive measure of the change in real wealth—net saving—plays a central role in determining whether current well-being can be sustained. The current composition of wealth serves to define the policy challenges that countries face in achieving sustainable development. If substitution possibilities are limited between natural and other factors of production, as one might expect, then technical progress is a necessary complement to policies for sustainability.

Cursed by Nature? The Politics of Natural Assets

Are natural assets a curse? In The Bottom Billion I argued why I thought they often did more harm than good to the poorest countries. But the real measure is not just the damage they cause, but their harm relative to their potential. Natural resources are the largest assets available to these societies. Their known natural capital has been estimated to be worth double their produced capital. The failure to harness natural capital is the single-most important missed opportunity in economic development. Since writing The Bottom Billion I have accumulated more research on the subject, as have many others. Indeed, whether an abundance of natural assets is a blessing or a curse is currently one of the disputes raging among economists. There are some high-visibility instances of natural assets appearing to ruin a country: Sierra Leone’s diamonds, for example, seemed to shred the fabric of that society to pieces; Nigeria’s oil fueled the corruption of the political class. But are these just outliers? After all, Botswana harnessed its diamonds to produce the fastest growing economy in the world, and Norway used its oil to achieve the world’s highest living standard. The question becomes whether there really is a “resource curse,” and whether, if it does exist, it is limited to countries with deeper problems. I have come to regard this as the most crucial issue in the struggle to transform the poorest societies. The revenues that they could get from natural assets are enormous, dwarfing any conceivable flows of aid. They could certainly be transformative. If they deliver, any efforts to inhibit the extraction of natural assets from the poorest countries are not simply counterproductive but irresponsible, impeding the path out of poverty. If, on the other hand, natural assets backfire, then there is an argument for leaving them in the ground. There would indeed be the basis for an alliance between the environmental lobby, pressing for natural assets to be conserved, and the development lobby, fighting to end mass poverty.