Romania – Systematic Country Diagnostic : background note – natural capital

Wealth accounting, including natural capital accounting (NCA), is a more appropriate metric for measuring sustainable growth. The common measure of economic growth is Gross Domestic Product (GDP). However, GDP looks at only one part of economic performance—income—and says nothing about the wealth and assets that underlie this income. This is analogous to measuring a company's performance by only looking at its income statement (sales) and not its balance sheet—which includes income, assets, and liabilities for a more complete picture of its overall sustainability. Total wealth is the sum of produced capital, human capital, and natural capital (plus net foreign assets) (see Annex 1 for details). When a country over-exploits its renewable resources such as land resources, or draws down its finite resources such as oil or mineral resources, it is depleting its natural capital and this should be accounted for in measuring sustainable growth. The omission is largely by construction, since the services that natural capital provides typically do not have explicit market prices or values and thus the full contribution is not included. For example, forests provide service flows such as carbon sequestration, erosion control, and air filtration. The lack of elicitation of these values precludes their inclusion and means that the traditional measure of GDP can give misleading signals about the long-term economic performance and well‐being of a country.