Archive of Journal - Financing

Financing – scientific magazine for economy

ISSUE 2023, No. 1, Article 1, Year of publication: 14, March, 2023
Alternative to GDP – Econometric Approach to Integrate Environment Degradation into Net Domestic Product


Stevo Pucar,PhD*; 
Bojan Baškot, PhD**

*PhD Full Professor, University of Banja Luka, The Faculty of Economics, Department for Economic Theory, Analysis and Policy

**PhD Assistant Professor, University of Banja Luka, The Faculty of Economics, Department for Quantitative Analysis and Informatics



The degradation of environment is not considered in the calculation of economic growth. Some countries are reducing their natural capital stocks, increasing their Gross Domestic Product (GDP) in the short term, but in the long-term their prospects are reduced, because of the degradation of environment. If we incorporate natural capital degradation directly into the calculation of economic growth, we can see whether expanded GDP is a result of sustainable development or not. As in important studies reviewed in this paper, Net Domestic Product (NDP) is proposed here instead of GDP, since it can incorporate natural capital depreciation, similarly as the physical capital depreciation. Despite the fact that GDP is predominant, NDP is as yet an important measure of the national accounting. This requires econometric assessing of the environment deterioration in money related terms, instead of in units like mass or space. A vital part here is data on particular sorts of natural capital. Quantitative measures for various kinds of resources are frequently very different in nature and cannot be summed or incorporated into a more extensive econometric framework. However, monetary worth is a predictable basis for econometric evaluation and can be applied with different kinds of capital. The statistical methods reviewed and proposed in this paper can hypothetically be utilized as a starting point in a gradual introduction of environmental degradation into economic growth calculations, however clearly assessing a wide range of degradation of natural capital in money related terms is a complex undertaking that requires a great deal of work by statistical institutions.

Keywords: Net Domestic Product; Gross Domestic Product; depreciation; environment; natural capital; economic growth; System of
National Accounts

DOI: 10.7251/FIN2301003P

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