Economic Development Page | 23

– the Tata Nano – will make motoring affordable to tens of millions of new drivers every year. As
populations move from villages to the cities, demand for heat and power increases steadily.

Environmental degradation means that almost 40 per cent of Asia’s population now lives in areas prone to
drought and erosion. With the Asian population set to triple in the next 20 years, and half these people
living in cities, air pollution will reach new records. Nor is access to clean water much better.

If national accounts kept a proper account of environmental depreciation – a cost subtracted from gross
output when measuring the true net output of an economy – many Asian countries would have less
impressive growth records. We might even have to call them Asian snails instead of tigers. Their success in
making consumer electronics is offset by extensive pollution and urban congestion. Ask anyone who
recently visited Bangkok.

Questions:

1. How does depreciation of ordinary machinery and building enter calculations of GDP or national
income?
2. What national accounts measure properly reflects depreciation of physical output?
3. How are conventional estimates of depreciation made?
4. What would be entailed in following the same procedures for environmental capital?
5. How would environmental capital for the whole planet affect national accounts?

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