Keywords: exports, Genuine Progress Indicator, GPI, imports, open economy, pollution havens, well-being, Gross National Income, GNI, Gross Domestic Product, GDP, environmental valuation, natural capital, ecosystem services, national welfare
Is the Genuine Progress Indicator really genuine? Considering well-being impacts of exports and imports
The Genuine Progress Indicator (GPI) is estimated as if nations operate within a closed economy. Therefore, in terms of coverage, the GPI is most analogous to Gross Domestic Product (GDP). Indeed, within the relevant literature, these two indicators are most often contrasted. However, consideration should be given to adapting the GPI, so it has more in common with Gross National Income (GNI). As with GDP, the GPI is concerned only with a particular physical location. Yet, it may be more effective if the GPI was freed from these physical boundaries in a similar manner to GNI. The GPI should be concerned more with the 'ownership' of the costs and benefits associated with economic growth than with the 'location' of those costs and benefits. Those that derive the most benefit from exploitation of the environment are often physically removed from the location of that damage. The GPI does not consider the net consumers of the negative externalities of environmental costs, merely the producers. Currently, however, the structure of the GPI allows a nation to enjoy, without penalty, the benefits of importing goods from countries which bear a disproportionately large cost of environmental degradation. This results in an overstatement of the real progress experienced by the county importing 'dirty goods'. This paper will investigate how certain GPI adjustments may be adapted to overcome this present shortcoming. However, the purpose of this paper is not only to empirically implement this new approach, but also to stimulate debate as to its potential merit.