Accounting for Sustainable Development over the Long-Run:Lessons from Germany

For many years, the World Bank has reported estimates of the degree of sustainability of the world’s economies using a measure of adjusted net savings. We construct long-run sustainability indicators for Germany over the period 1850-2000 to test the relationship between these net savings-based indicators and a number of measures of well-being over the long-run. These are the present value of future changes in consumption and changes in average height and infant mortality rates. We find that German sustainability indicators are positive for the most part, although they are negative during and after the two World Wars and also the Great Depression. However, we do not observe similar trends in the path of future consumption. Overall, we find that Genuine Savings is positively related to the present value of changes in future consumption, with some evidence of a cointegrating relationship when the measure of changes in assets is made more comprehensive. Our main contribution is to demonstrate the importance of broader measures of capital, including measures of technological progress; and the limits of conventional measures of investment to understand why future German consumption did not collapse.