European Regional Science Association
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European Regional Science Association
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The abstract for paper number 104:
Max Munday
Cardiff Business School,
Cardiff University, Cardiff, United Kingdom, Annette Roberts, Welsh Economy Research Unit
Cardiff Business School,
Cardiff University, Cardiff, United Kingdom
Developing a regional index of sustainable economic welfare and policy implications
The economic progress of the Welsh economy is still broadly assessed in terms of increases in real gross domestic product (GDP), real gross domestic product per head, and deviation of these indicators from national averages. There has been an extensive debate on the usefulness or otherwise of GDP-based measures. Variation in GDP per capita compared to the UK as a whole is used to assess the success of economic development policies in Wales. GDP is merely a partial measure of well-being because it focuses on activities in the market process. The measure fails to pick up on the value of unpaid work, or the social costs of production externalities. Consequently, increases in GDP can be associated with widening income inequalities, widening intra-regional income disparities, depletion of the environment, a worsening quality of life, and congestion. GDP estimates can, however, be adjusted for welfare gains and losses, for example, the costs of pollution and the value of unpaid work.
An alternative to adjusted GDP estimates are Indices of Sustainable Economic Welfare (ISEW). These are often based on personal consumption spending – this being a proxy indicator of the welfare derived from private goods and services. Typical ISEWs adjust consumption spending to allow for factors such as the uneven distribution of income, the costs of environmental degradation, and the costs associated with the use of natural capital. There are a number of problems in the calculation of such indices. For example, estimation involves placing arbitrary financial values on the environment.
In Wales there has been some progress in estimating ISEW using established methodologies. Unfortunately construction of regional indices is hindered by data availability problems, and the need to estimate adjustments to personal consumption spending based on national, as opposed to regional, data. These problems noted initial estimates have revealed an inverse relationship between GDP per capita in Wales and sustainable economic welfare, largely caused by depletion of natural resources, and increasing income inequality (Midmore et al., 2000).
The paper examines the case for developing an ISEW for the Wales, and how such an index can be developed to aid policy making decisions. The paper has the following objectives:
To outline progress to date in the construction of an ISEW for Wales, reviewing specific regional and national data problems and assessing how far these can be overcome. To review existing methodologies on the construction and use of ISEW, identifying components used in different indices, and the use of different valuation methods. To report on a developed ISEW for Wales, including an analysis of strengths and weaknesses of the index suggesting potential avenues of further development. To examine the developmental implications of past and forecast movements in the ISEW, and ramifications for policy of key institutional players in Wales. The paper will demonstrate that in the Welsh case:
Development of the ISEW could play a valuable role in making both the policy community, industry and population more aware of those factors that really add to, and subtract from welfare. That there is considerable value in individual ISEW adjustments. For example, in the context of current Welsh economic problems, new research providing information on income distribution, and services deriving from domestic labour, are found to have a much wider relevance.
That further development of a Welsh ISEW might be seen more in terms of creating further information to complement both GDP data, and other single and aggregate indicators.
Unfortunately full paper has not been submitted.