Ecological Economics
Lecture 06
05th May 2011
rmota@ist.utl.pt
Rui Mota and Tiago Domingos
Environment and Energy Section
Department of Mechanical Engineering
What is Sustainable Development?
• Brundtland report (1987) – “Development that meets the needs of the
present without compromising the ability of future generations to meet
their own need.”
– Intra- and inter-generational equity
– Anthropocentric
• Sustainability of what?
–
–
–
–
non-declining aggregate output or consumption,
non-declining utility,
non-declining aggregate resources (productive base),
non-increasing pollution, …
• Weak vs. Strong Sustainability
• We choose non-declining utility as the criterion for sustainable
development
– some call this Weak Sustainability, but we don’t agree 
– this still misses the intra-generational component
National Accounting: Keywords
•
•
•
•
•
•
•
•
Flow of income in the economy
GDP
Savings
Net vs Gross
Domestic vs National
CPI
Inflation
Real vs Nominal Aggregates
National Accounts
• The System of National Accounts is a comprehensive accounting
framework within which economic data can be compiled and presented in
a format that is designed for purposes of economic analysis, decisiontaking and policy-making.
• Integrates a set of macroeconomic accounts, balance sheets and tables
based on a set of internationally agreed concepts, definitions,
classifications and accounting rules.
• Accounts compiled for a succession of time periods, thus providing a
continuing flow of information, indispensable for the monitoring, analysis
and evaluation of the performance of an economy over time.
Aggregation
• 5 Sectors:
– Households
– Firms
– Financial Intermediaries (banks, …)
– Governments (national and local)
– Rest Of the World (ROW)
• 4 Markets (Supply and Demand):
– Goods and services
– Resources (labor, land and capital)
– Money (loanable funds)
– Foreign exchange
Circular flow of income
Households
€
Factor
payments: Y
Factors
€
Expenditures: C
Output
2
1
3
Firms
•
•
•
•
•
•
Factors: Labor, Land, Capital
Factor payments: Wage, Rents, Interests, Profits – become income.
Expenditures: on goods and services (output)
1 – Income approach: Y = Wage + Rent + interest + operating surplus
2 – Output approach: Y = market value of all produced output (Σ VA)
3 – Expenditure approach: Y = C
Circular flow of income
ΔGov
S
FI
Households
C
G
Gov.
Lend
Borrow
Tr
X
T
M
Y
ROW
Firms
I
• Balance to:
– Households: Y - Tnet = C + S, Tnet = T- Tr
– Firms: Y = C + I + G + X - M
– Government: ΔGov = Tnet - G
– FI: S + ΔGov + B - L = I
– ROW: X - M = L - B
- Market for outputs
National Accounts Identity
C
I
X
M
Main Aggregates
National
(Residence)
- Primary income
flows to ROW
Product / Income
+ Primary income flows
from ROW
Domestic
(Territory)
Net
+ Consumption Fixed
Capital (CFC)
Aggregate X
- Consumption of Fixed
Capital (CFC)
Gross
X – Domestic produc, Income, Saving, Disposable income, ...
Domestic Product vs. National Income
• GNI = GDP + Y’RM . Where Y’RM = Net income payable to non-resident
units for production factors.
180
160
140
Milliards euros
120
100
80
60
PT Domestic
Ireland Domestic
40
PT National
Ireland National
20
0
1960
1965
Source: AMECO database
1970
1975
1980
1985
1990
1995
2000
2005
Domestic Product vs. National Income
• The value added of a firm owned by Portuguese residents and functioning
on our economic territory is part of the Portuguese GDP and GNI.
• The wage (or other factor payments) of a resident that during 6 months
worked to a firm in Spain is a part of Spanish GDP and Portuguese GNI.
• The operating surplus (profits) – capital remuneration of a firm located in
Portugal but owned by Germans – sent to Germany, is part of the
Portuguese GDP and the German GNI.
• The income earned by Portuguese emigrants working abroad as residents
is not part of the Portuguese GDP and GNI.
Main Aggregates
Subtract CFC
Gross Domestic Product (GDP)
Net Domestic Product (NDP)
+ Net primary income flows to ROW
= Gross National Income (GNI)
= Net National Income (NNI)
+ Current net transfers from ROW
= Gross National Disposable Income
= Net National Disposable Income
- Final consumption (Private and Government)
= Gross Saving (S)
= Net Saving (NS)
Gross Product vs. Net Product [Million euros 2000]
160000
140000
120000
Million euros
100000
GDP
80000
NDP
60000
40000
20000
0
1990
Source: AMECO database
1995
2000
2005
Gross Product per person employed [euros 2000]
3000000
2500000
2000000
1500000
1000000
500000
0
1960
1965
1970
Source: AMECO database
1975
1980
1985
1990
1995
2000
2005
2010
Gross Product per hours worked [euros 2000]
11000000
10500000
10000000
9500000
9000000
8500000
8000000
1986
Source: AMECO database
1991
1996
2001
2006
2011
Net Saving in Portugal [Mrd euros 2000]
• Net savings are negative when consumption is higher than net disposable
income
1000000
500000
0
1960
1965
1970
-500000
-1000000
-1500000
-2000000
Source: AMECO database
1975
1980
1985
1990
1995
2000
2005
2010
National Disposable Income [Mrd euros 2000]
1200000
1000000
800000
600000
400000
200000
0
1970
1975
Source: AMECO database
1980
1985
1990
1995
2000
2005
2010
Net Lending/Borrowing [% of GDP]
• Net resources that the total economy makes available to the rest of the
world (if it is positive) or receives from the rest of the world (if it is
negative).
0
1977
1982
-1
-2
-3
-4
-5
-6
-7
-8
-9
-10
Source: AMECO database
1987
1992
1997
2002
2007
2012