Economics Education Module: What is Inclusive Wealth?

Inclusive Wealth (IW) comes from a theory in environmental economics which tracks the total value of all resources (capital stocks) within a community used for development or well-being

What are capital stocks?

These resources provide flows of goods and services which then provide

economic opportunities and well-being to communities. Economists then

value these opportunities and well-being benefits.

What are examples of capital stocks?

Produced capital includes all infrastructure and built structures. One example is roadways, they provide economic opportunities through providing access to high paying jobs in different locations and also increase well-being through access to other surrounding resources such as public forests

Natural Capital includes all ecosystems and subsoil resources. One example is forestland, it provides economic opportunities through timber harvests and management but also increases well-being through recreational opportunities and air quality benefits

Human capital includes all the knowledge and skills within people. This provides economic opportunities through wages but also increases well-being through personal education benefits

Health capital includes short and long term health quality, which provides economic opportunities by increasing productivity and also increases well-being through quality-of-life increases

Social capital includes all of the social connections and trust among people. This provides economic opportunities through sharing ideas and increases well-being through quality-of-life and health quality increases.

How does this impact IW calculations?

The value of each capital stock equals the quantity of the stock multiplied by the value it brings to the community through well-being and economic development. Look at the figure below to see an example of how this is done for forest land.

This process can be used to value any capital asset to include within IW since the value of each asset is the capital asset multiplied by its present discounted value. Finally, total IW equals:

For sustainable development we want to ensure that this value is increasing over time which leads to a sustainability criteria:

Changes in IW > 0 means a community is sustainable