final report - gpi

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1.INTRODUCTION1.1 INTRODUCTIONCurrent economic and political systems still foster economic growth as a path to

happiness, and the Gross Domestic Product (GDP) remains the most importantmeasure of societal planning and decision-making. Economists have for longrecognised that the GDP is misleading as an indicator of the welfare of a nation, letalone as a measure of peoples well-being, although the makers of economic policycommonly think to the contrary. (e.g. see Chambers 2000, 10) Several studies showthat economic growth does not increase the happiness of the people inindustrialised countries anymore (e.g. see Kahneman et. al 2003). The problemacyof using GDP as a measure of well-being of a society became apparent in practicaleconomic policies in most industrialised countries in the early 1970s and launchedthe development of improved welfare indicators persuading to overcome theproblems of the GDP measure. However, advancements in the area have beenlimited and they have not gained the general acceptance of the GDP measure.

The most famous examples of the attempts to develop improver welfare indicatorsare the MEW (Measure of Economic Welfare) -measure developed by Nordhaus and

Tobin in 1973, the Japanese NNW (Net National Welfare) indicator developed byUno in 1973, the EAW (Economic Aspects of Welfare) -measure of Zolatas in 1981,the NAMEA matrix (National Accounts Matrix with Environmental Accounts) in thelate 1980s of Statistics Netherlands and Roefie Hueting, the ISEW (Index ofSustainable Economic Welfare) indicator of Daly and Cobb in 1989, its laterderivative GPI (Genuine Progress Indicator), and the UNs HumanDevelopmentIndex, or HDI, in 1990. All except the HDI use as a starting point the System ofNational Accounts (SNA) and include the non-marketed commodities in an

aggregated macro indicator in monetary terms as the neoclassical economic theorydemands. HDI on the other hand is an index, and thus not valued in monetaryterms.

Among the most interesting of these measures is the concept of the ISEW, theIndicator of Sustainable Economic Development, developed by Daly and Cobb (1989,401-455), and its further derivative the GPI, or the Genuine Progress Indicator. AnAmerican organisation Redefining Progress first introduced GPI as an alternative toGDP in U.S. in 1995, and has since updated and developed the indicator. Accordingto Castaneda (1999, 237), in addition to the United States, there have been at leastsix other attempts to implement the ISEW to a national economy: UK (Jackson &Marks 1994), Germany (Diefenbacher 1994), the Netherlands (Rosenberg & Oegema

1995), Austria (Stockhammer et. al. 1997), British Columbia (Gustavson &Lonergan 1994), Sweden (Jackson & Stymne 1996) and Chile (Castaneda 1999).

1.2 UNDERSTANDING ECONOMIC INDICATORS1.2.1 Definitions

GDP stands for Gross Domestic Product, the total worth estimated in currencyvalues of a nations production in a given year, including service sector, research,and development. That translates to a sum of all industrial production, work, sales,business and service sector activity in the country. Usually this is calculated over a

period of one year, but there may be analysis of short and long term trends to beused for economic forecast. Gross Domestic Product can also be calculated on a per


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capita (or per person) basis to give a relative example of the economic developmentof nations.

GNP stands for Gross National Product.In general terms, GNP means the total ofall business production and service sector industry in a country plus its gain on

overseas investment.In some cases GNP will also be calculated by subtracting thecapital gains of foreign nationals or companies earned domestically. Through GNPan accurate portrait of a nations yearly economy can be analyzed and studied fortrends since GNP calculates the totalincome of all the nationals of a country. Thisgives a far more realistic picture than the income of foreign nationals in the countryas it is more reliable and permanent in nature.Gross National Product can also becalculated on a per capita basis to demonstrate the consumer buying power of anindividual from a particular country, and an estimate of average wealth, wages, andownership distribution in a society.

1.2.2 Calculation

1.2.2.1 How GDP is calculated

GDP of a country is defined as the total market value of all final goods and servicesproduced within a country in a given period of time (usually a calendar year). It isalso considered the sum of value added at every stage of production (theintermediate stages) of all final goods and services produced within a country in agiven period of time.

The most common approach to measuring and understanding GDP is theexpenditure method: GDP = consumption + investment + (government spending) +(exportsimports), or,

GDP = C + I + G + (X-M)

Fig.1-Understanding Money Flow in the GDP ComponentsSource:www.moneychimp.com (labels added by MindTools)

The solid arrows indicate the components of the GDP, and the direction of themoney flows. The arrow indicating the Trade Deficit would be in the oppositedirection in the case of a Trade Surplus.
http://www.diffen.com/difference/Category:Investmenthttp://www.diffen.com/difference/Alien_vs_Immigranthttp://www.diffen.com/difference/Income_vs_Revenuehttp://www.diffen.com/difference/Nature_vs_Nurturehttp://en.wikipedia.org/wiki/Value_addedhttp://www.moneychimp.com/http://www.moneychimp.com/http://en.wikipedia.org/wiki/Value_addedhttp://www.diffen.com/difference/Nature_vs_Nurturehttp://www.diffen.com/difference/Income_vs_Revenuehttp://www.diffen.com/difference/Alien_vs_Immigranthttp://www.diffen.com/difference/Category:Investment


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1.2.2.2 How GNP is calculated

There are various ways of calculating GNP numbers. The expenditure approachdetermines aggregate demand, or Gross National Expenditure, by summingconsumption, investment, government expenditure and net exports. The income

approach and the closely related output approach sum wages, rents, [[interest,profits, non income charges, and net foreign factor income earned. The threemethods yield the same result because total expenditures on goods and services(GNE) is equal to the value of goods and services produced (GNP) which is equal tothe total income paid to the factors that produced the goods and services (GNI)

Expenditure Approach to calculating GNP:

GNP = GDP + NR (Net income from assets abroad (Net Income Receipts))

1.2.3 GDP vs. GNPWhats the Difference?

Both GDP & GNP represent an attempt to measure the total economic output of anation during a given period (usually one year), and serve as barometers to measureboth the level and direction of a countrys economic activity.

GDP, or Gross Domestic Product is calculated either by measuring all incomeearned within a country, or by measuring all expenditures within the country,which should approximately be the same.

GNP, or Gross National Productuses GDP, but adds income from foreign sources,less income paid to foreign citizens and entities.

GNP can be either higher or lower than GDP, depending on whether or not acountry has a positive or negative result from net foreign inflows and outgo. ThoughGNP is still calculated, the United States shifted to GDP as its primary economicmeasure in 1991, in part because most countries in the world use GDP to measurethe size and direction of their economies. As a result, GNP numbers are lesscommon than GDP figures.

Both GDP and GNP are complicated, and best summarized in a side-by-sidecomparison:

Gross Domestic Product -GDP

Gross National Product -GNP

What is it? A measure of the total

economyof a nation.

Same as GDP

How its

calculated

Measuring all income earned

within a country, or by

measuring all expenditures

GDP, plus income from

foreign sources, less income

paid to foreign citizens and
http://www.investorwords.com/2153/GDP.htmlhttp://www.investorwords.com/2153/GDP.htmlhttp://www.investorwords.com/2186/GNP.htmlhttp://www.investorwords.com/2186/GNP.htmlhttp://www.investorwords.com/2186/GNP.htmlhttp://www.investorwords.com/2153/GDP.html


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Gross Domestic Product -

GDPGross National Product -

GNP

within the country, whichshould approximately match

entities

Why is it

important?

It measures both the size and

direction of economic activity

(growth, stagnation or

contraction)expansions and

recessions are based on

changes in GDP

Same as GDP

Who uses it? Politicians, economists, large

companies (especially multi-

nationals)

Same as GDP

What does it

mean to me?

Shows the relative strength of

the nations economy compared

to that of other nations;provides a base from which to

measure economic changes

Same as GDP

What is the

GDP/GNP of

the US?

$15,684,800,000,000 as of

2012

$15,097,083,000,000 as of

2011

Highest/lowest

GDP/GNP in

the world

Highest:United States$15,684,800,000,000(2012)

Lowest:Tuvalu$37,874,581 (2012)

Highest:UnitedStates$15,097,083,000,000 (2011)

Lowest:N/A

Per Capita

GDP/GNP

The Gross Domestic Product of

a country divided by its total

population

The Gross National Product

of a country divided by its

total population


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Gross Domestic Product -

GDPGross National Product -

GNP

Highest/lowestPer Capita

GDP/GNP in

the world

Highest:Luxembourg$107,206 (2012)

Lowest:DemocraticRepublic of the Congo$237 (2012)

Highest:Qatar$87,030 (2011)

Lowest:DemocraticRepublic of theCongo $350 (2011)

What is the

Per Capita

GDP/GNP of

the US?

$49,922 (2012) World Rank: 11th

$48,890 (2012) World Rank: 10th

Table -1 (Statistical sources:The World Bank GDP By Country,IMF World Economic OutlookDatabase, April 2013,Wikipedia, List of Countries by GNI (PPP) Per Capita)

1.2.4 What GDP and GNP Dont Do

Its important to remember that GDP and GNP are measures of the big picture of anations economy. As a result, there are statistics closer to home that dont match

up with GDP/GNP, particular when we look at per capita figures.

Personal income. To illustrate, let us consider the Per Capita GDP in the US for2012 which was $49,922. This should not be confused with anything resemblingaverage income!Per capita GDP is simply the GDP divided by the population of thecountry. It is not an average wage. According to the Social Security Administration,the average wage was closer to $43,000 in 2012.

Income distribution. We can look at GDP/GNP numbers to determine the overalleconomic strength of a given nation, but that number does not indicate the incomedistribution within the country. A nation could have a relatively high GDP/GNP, or ahigh per capita GDP/GNP because it has a small number of very large industries(typical of oil producing countries). In this way, high GDP/GNP numbers could maskthe fact that the majority of people in a country are relatively poor.

GPI takes into consideration whether the output of goods and services of a society ispositively impacting the well-being of the population. The expenditures on criminal

justice and pollution clean-up, for example, are deducted from total increases inspending to assess whether there is a net improvement or net decline in socialwelfare. Other components look at the extent to which production occurs utilizingsustainable processes that are not harmful to the environment. Here's a graphicimage of just how far off GPI suggests we are from what the GDP measures.
http://data.worldbank.org/indicator/NY.GDP.MKTP.CDhttp://data.worldbank.org/indicator/NY.GDP.MKTP.CDhttp://data.worldbank.org/indicator/NY.GDP.MKTP.CDhttp://en.wikipedia.org/wiki/List_of_countries_by_GNI_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GNI_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GNI_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GNI_%28PPP%29_per_capitahttp://data.worldbank.org/indicator/NY.GDP.MKTP.CD


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Fig.2 GDP Vs GPI

Critics point out that the GDP measure was created during the Second World Warin an effort to keep track of wartime production gains. The purpose was never touse this as a measure of our wellbeing and social progress. A report issued in 1995

by the San Francisco-based organization Redefining Progress offers a detailedanalysis of GDP's inconsistencies:

GDP TREATS CRIME, DIVORCE AND NATURAL DISASTERS AS ECONOMICGAIN. Since the GDP records every monetary transaction as positive, thecosts of social decay and natural disasters are tallied as economic advance.Crime adds billions of dollars to the GDP due to the need for locks and othersecurity measures, increased police protection, property damage, andmedical costs. Divorce adds billions of dollars more through lawyer's fees, theneed to establish second households and so forth. Hurricane Andrew was adisaster for Southern Florida. But the GDP recorded it as a boon to the

economy of well over $15 billion. GDP IGNORES THE NON-MARKET ECONOMY OF HOUSEHOLD AND

COMMUNITY. The crucial functions of childcare, elder care, other home-based tasks, and volunteer work in the community go completelyunreckoned in the GDP because no money changes hands. As the non-market economy declines, and its functions shift to the monetized servicesector, the GDP portrays this process as economic advance. The GDP alsoadds the cost of prisons, social work, drug abuse and psychologicalcounseling that arise from the neglect of the non-market realm.

GDP TREATS THE DEPLETION OF NATURAL CAPITAL AS INCOME. TheGDP violates basic accounting principles and common sense by treating the

depletion of natural capital as income, rather than as the depreciation of anasset. The Bush Administration made this point in the 1992 report of theCouncil on Environmental Quality. "Accounting systems used to estimate


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GDP" the report said, "do not reflect depletion or degradation of the naturalresources used to produce goods and services." As a result, the more thenation depletes its natural resources, the more the GDP goes up.

GDP INCREASES WITH POLLUTING ACTIVITIES AND THEN AGAIN WITHCLEAN-UPS. Superfund clean-up of toxic sites is slated to cost hundreds of

billions of dollars over the next thirty years, which gets added to the GDP.Since the GDP first added the economic activity that generated that waste, itcreates the illusion that pollution is a double benefit for the economy. This ishow the Exxon Valdez oil spill led to an increase in the GDP.

1.2.5 Genuine progress indicator

Genuine Progress Indicator, or GPI, is ametric that has been suggested to replace,

or supplement, gross domestic product (GDP) as a measure of economic growth.

GPI is designed to take fuller account of the health of a nation's economy by

incorporating environmental and social factors which are not measured by GDP.

For instance, some models of GPI decrease in value when the poverty rate increases.

The GPI is used in green economics, sustainability and more inclusive types of

economics by factoring in environmental and carbon footprints that businesses

produce or eliminate. "Among the indicators factored into GPI are resource

depletion, pollution, and long-term environmental damage." GDP gains double the

amount when pollution is created, since it increases once upon creation (as a side-

effect of some valuable process) and again when the pollution is cleaned up,

whereas GPI counts the initial pollution as a loss rather than a gain, generally

equal to the amount it will cost to clean up later (plus the cost of any negative

impact the pollution will have in the mean time). While quantifying costs and

benefits of these environmental and social externalities is a difficult task,

"Earthster-type databases could bring more precision and currency to GPI's

metrics." "Another movement in economics that might embrace such data is the

attempt to 'internalize externalities' - that is, to make companies bear the costs" of

the pollution they create (rather than having the government bear that cost) "by

taxing their goods proportionally to their negative eco-impacts."

GPI is an attempt to measure whether the environmental impact of the products

produced and consumed in a country is a negative or positive factor in economic

health, and also account for the amount of people currently dependent on the

government for support. Businesses are beginning to expand services/products that

have actually resulted in the improvement of the environment and are starting totake ecological transparency seriously enough to embed it in their strategic thinking.

GPI advocates claim that it can more reliably measure economic progress, as it

distinguishes between the overall "shift in the 'value basis' of a product, adding its

ecological impacts into the equation."

Comparatively speaking, the relationship between GDP and GPI is analogous to the

relationship between the gross profit of a company and the net profit; the Net Profit

is the Gross Profit minus the costs incurred; the GPI is the GDP (value of all goods

and services produced) minus the environmental and social costs. Accordingly, the

GPI will be zero if the financial costs of poverty and pollution equal the financialgains in production of goods and services, all other factors being constant.
http://en.wikipedia.org/wiki/Performance_metrichttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Performance_metric


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1.3 NEED FOR THE STUDYWhat if we defined success not by the money we spent and the goods we consumed

but by the quality of life we create not only for ourselves but for everyone with

whom we share the planet? What if we added up the positives of economic growth

and subtracted from them the clear negatives, so we had a better picture of whetherwe were headed in the right direction?

The Genuine Progress Indicator (GPI) does exactly that. With 26 indicators, the GPI

consolidates critical economic, environmental and social factors into a single

framework in order to give a more accurate picture of the progress and the setbacks

we have made.

From the costs of crime, pollution, commuting and inequality to the value of

education, volunteer work, leisure time and infrastructure, the GPI helps us

understand the true impacts of our policies and will lead us on the path toward a

genuinely sustainable economy.

Most economists assess the progress in welfare of the people by comparing the

gross domestic product over time, that is, by adding up the annual dollar value of

all goods and services produced within a country over successive years. However,

GDP was never intended to be used for such purpose. It is prone to productivism or

consumerism, over-valuing production and consumption of goods, and not

reflecting improvement in human well-being. It also fails to distinguish between

money spent for new production and money spent to repair negative outcomes from

previous expenditure. For example, one million dollars spent to build new homes

may be an indication of progress but one million dollars spent in aid relief to thosewhose homes have been destroyed is not the same kind of progress. This becomes

important especially when considering the true costs of development that destroys

wetlands and hence exacerbate flood damages.Simon Kuznets,the inventor of the

concept of the GDP, notes in his very first report to the US Congress in 1934:

...the welfare of a nation [can] scarcely be inferred from a measure of national

income...

An adequate measure must also take into accountecological yield and the ability of

nature to provide services. These things are part of a more inclusive ideal of

progress, which transcends the traditional focus on raw industrial production.

1.4 OBJECTIVES:The primary objective of starting this project work is to find out the GPI for

Coimbatore location. To start with, we have to understand what GPI is and study

the ways and methodologies on the calculation of GPI.

The University of Maryland, has already calculated the GPI for the United States of

America. Also, the Universitys support in analyzing the opportunities and

challenges of applying GPI to local scales is studied using the case study of GPI

estimates for or Vermonts northern forest region. (Work done by Kenneth J.
http://en.wikipedia.org/wiki/Productivismhttp://en.wikipedia.org/wiki/Consumerismhttp://en.wikipedia.org/wiki/Measuring_well-beinghttp://en.wikipedia.org/wiki/Simon_Kuznetshttp://en.wikipedia.org/wiki/Ecological_yieldhttp://en.wikipedia.org/wiki/Ecosystem_serviceshttp://en.wikipedia.org/wiki/Ecosystem_serviceshttp://en.wikipedia.org/wiki/Ecological_yieldhttp://en.wikipedia.org/wiki/Simon_Kuznetshttp://en.wikipedia.org/wiki/Measuring_well-beinghttp://en.wikipedia.org/wiki/Consumerismhttp://en.wikipedia.org/wiki/Productivism


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Bagstad & Marta Ceroni). This would enable us to apply the GPI estimate for

Coimbatore as it is at the city level.

1.5 SCOPE AND LIMITATIONS OF THE STUDY:The scope of the study includes the understanding of the factors considered incalculating the GPI by the University of Maryland and other countries which have

already calculated the GPI for their countries.

Due to the time constraint, I have gone through the three major factors, which are

considered as important for calculating the GPI. The three major factors are

Economic Indicators, Environment Indicators and Social Indicators. Under these

three major categories, there are totally 26 Indicators available for calculating the

GPI.

Hence, this report covers the detailed study of the Indicators of the GPI and the

arrival of the GPI for the Coimbatore location will be continued in the Final projectof this course.

2.REVIEW OF LITERATUREIn spring 2009, Governor Martin OMalley assembled an inter-agency workgroup to

explore how government could measure social well-being and develop an alternative

metric to traditional economic indicators. The metrics function would be to measure

whether or not economic progress results in sustainable prosperity.

In partnership with the University of Marylands Center for Integrative

Environmental Research (UMD-CIER), the workgroup examined several options.Criteria used to determine the framework included the need to develop a metric that

was academically sound and generally accepted, comparable to other State and

national measures, traceable over time to show trends, and able to be adapted for

Marylands unique conditions.

The Genuine Progress Indicator (GPI), which has a proven track record, was

selected as the model. With Marylands extensive history of data collection and

management, especially relating to Chesapeake Bay restoration efforts, the

workgroup fine-tuned the national GPI methodology and improved on the data

identification and collection.

The resulting interactive MD-GPI Model is much more than a simple list of

indicators; it is a dynamic tool that allows policymakers and citizens to watch how

investments and decisions in one indicator affect and is affected by other indicators.

Moving forward the workgroup will continue to fine-tune the MD-GPI, while

maintaining comparability with other jurisdictions.

Published academic papers on the Genuine Progress Indicator

21st Century GDP: National Indicator for a New Era: This report authored by

Justin Zorn and Ben Beachy while graduate students at Harvards KennedySchool and prepared for Congressman Hansen Clarke seeks to answer the

question: How should the U.S. government insitute supplemental national
http://www.green.maryland.gov/mdgpi/whatisthegpi.asphttp://www.green.maryland.gov/mdgpi/model.asphttp://actioncenter.capwiz.com/bio/id/1309http://www.citizen.org/Page.aspx?pid=3250#benhttp://www.citizen.org/Page.aspx?pid=3250#benhttp://actioncenter.capwiz.com/bio/id/1309http://www.green.maryland.gov/mdgpi/model.asphttp://www.green.maryland.gov/mdgpi/whatisthegpi.asp


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accounts that better reflect the welfare of the nations people? It zeroes in on

three core elements of moving beyond GDP: (1) designing new indicators, (2)

attaining the operational capacity in the executive branch to produce new

indicators, and (3) overcoming political obstacles to reform.

Beyond GDP: The Need for New Measures of Progress: This paper, publishedby Boston University, and co-authored by Robert Costanza,Maureen Hart,

Stephen Posner and John Talberth, reviews the history of how and why the

GDP has become a widely accepted standard for measuring a countrys

perceived overall progress in human development when that was never its

intended purpose. The authors review other measurement methods that try

to capture environmental and societal well-being in addition to economic

growth and argue that a new indicator or set of indicators for measuring true

human progress is urgently needed.

The Genuine Progress Indicator 2006: This report, co-authored by Dr. JohnTalberth, Clifford Cobb, and Joel Slattery presents an update to the Genuine

Progress Indicator one of the first alternatives to GDP vetted by the

scientific community and used regularly by government and non-

governmental organizations worldwide.

Development of Sustainable Economic Welfare in Finland: ISEW and GPI

1945-2007: This paper authored by Jukka Hoffrn and Hanna Rtto explores

the Indicator of Sustainable Economic Development (ISEW) and its further

derivative, the Genuine Progress Indicator (GPI), adopted using Finnish

data. The results show that the economic growth measured by Gross

Domestic Product (GDP) has not improved the economic wellbeing of people

in Finland since the mid-1980s.

A case study for Northeast Ohio: This paper published in the academic

journal, Ecological Indicators,and co-authored by Kenneth Bagstad and Md

Rumi Shammin, calculates the GPI for the State of Ohio, the cities of Akron

and Cleveland, and 17 Northeast Ohio counties for the years 19902005. It

evaluates temporal and spatial GPI trends, including inter-regional (Ohio

versus other comparable U.S. local GPI studies) and intra-regional (urban

suburbanrural) comparisons.

Economic Openness and Green GDP: This paper, authored by John Talberth

andAlok K. Bohara,published in the academic journal,Ecological Indicators,

develops models of green GDP growth and the gap between traditional and

green GDP by using a panel data set from eight countries spanning 3050

years. The authors find strong and robust results suggesting a negative

nonlinear correlation between economic openness and green GDP growth and

a positive nonlinear correlation between openness and growth of the gap

between traditional and green GDP

An Assessment of the Valuation Methods Used to Calculate the Index of

(ISEW), (GPI), and (SNBI): This paper authored by Philip A. Lawn and

published in the academic journal, Environment, Development and
http://www.crawford.anu.edu.au/crawford_people/content/staff/rcostanza.phphttp://www.sustainablemeasures.com/staffhttp://neweconomicsinstitute.org/people/stephen-posnerhttp://www.sustainable-economy.org/bio?id=2http://www.journals.elsevier.com/ecological-indicators/http://healthpolicy.unm.edu/scholars-detail/senior-fellows/alok-k-bohara-phdhttp://www.journals.elsevier.com/ecological-indicators/http://www.springer.com/environment/sustainable+development/journal/10668http://www.springer.com/environment/sustainable+development/journal/10668http://www.journals.elsevier.com/ecological-indicators/http://healthpolicy.unm.edu/scholars-detail/senior-fellows/alok-k-bohara-phdhttp://www.journals.elsevier.com/ecological-indicators/http://www.sustainable-economy.org/bio?id=2http://neweconomicsinstitute.org/people/stephen-posnerhttp://www.sustainablemeasures.com/staffhttp://www.crawford.anu.edu.au/crawford_people/content/staff/rcostanza.php


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Sustainability, closely examines the valuation methods used in the

calculations of the Index of Sustainable Economic Welfare, the Genuine

Progress Indicator, and the Sustainable Net Benefit Index. It argues that a

consistent and more robust set of valuation techniques is required in order

for these alternative indexes to gain broad acceptability.

3.RESEARCH METHODOLOGY3.1 RESEARCH DESIGN

This is a descriptive study on the existing structure of Genuine Progress Indicator.

A descriptive study analyses and finds out the various events and situations rather

than trying to find out the reason behind the happening of the events or situations.

This study tries to find out the various factors that influence the calculation of the

GPI and the comparison with the GDP.

3.2 DATA COLLECTION METHODThe method of data collection employed for the study is secondary data collection.

The sources of secondary data are the websites of various countries which already

arrived the GPI value. Majority of the documents were referred from the University

of Maryland.

3.3 SOURCES OF DATAThe sources of data include the case studies and methodologies used or followed in

various countries. In order to obtain more recent data, articles and online news

portal such as Bloomberg and magazines were also referred. Various websites like

uvm.edu, Wikipedia and IMF also provided required information.

3.4 UNDERSTANDING GPI & ITS INDICATORS3.4.1 Development of the GPI in the United States

The calculation methodology of GPI was first adapted to US data in late 1990s.

According to results, the GDP has increased substantially, but at the same time the

GPI has stagnated. Thus, according to GPI theory, the economic growth in the USA

i.e. the growth of GDP has not increased the welfare of the people during last 30

years. So far, GPI time-series have been calculated for USA and Australia as well as

for several of their states. In addition, GPI has been calculated for Austria, Canada,

Chile, France, Finland, Italy, the Netherlands, Scotland and UK.

3.4.2 Development of the Finnish GPI

The GPI time-series 1945 to 2011 for Finland have been calculated at the Statistics

Finland. The calculation has followed closely the US methodology. According to

results in 1970s and 1980s the economic growth, measured by GDP, clearly

increased the welfare, measured by the GPI. After the economic recession of early

1990s the GDP continued to grow, but the GPI stayed on a lower level. As can beobserved there a widening gap between the trends of GDP and GPI that arose in the

early 1990s. In 1990s and 2000s the growth of GDP has not benefitted the welfare
http://www.springer.com/environment/sustainable+development/journal/10668http://www.springer.com/environment/sustainable+development/journal/10668


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of an average Finn. If measured by GPI, the sustainable economic welfare has

actually decreased due to environmental hazards that have cumulated to

environment. The Finnish GPI time series have been updated by Dr. Jukka Hoffrn

at Statistics Finland.

3.4.3 GPI Indicators

There are 26 separate indicators that comprise the Genuine Progress Indicator. The

following description of each indicator is drawn from the latest nationalGPI report.

3.4.3.1 Economic

Life is not all about work and it is worth more than the goods and services we buy.

The GPI looks at consumption and investment in new ways while bringing income

inequality into the picture.

Economic Indicators

Personal Consumption Expenditures

Income Inequality

Adjusted Personal Consumption

Cost of Consumer Durables

Value of Consumer Durables

Cost of Underemployment

Net Capital Investment

Personal Consumption Expenditures

Personal consumption expenditures on goods and services are the key driver of the

GDP. Personal consumption expenditures are a valid starting point for the GPI, as

well; however, we are ultimately interested in the welfare associated with this

consumption rather than the monetary value of production, and so we start with

this indicator, but flesh it out with additional indicators.

Income Inequality

There is strong empirical evidence that widening income inequality hampers the

overall economic welfare of a society. A highly unequal distribution of income can

increase crime, reduce worker productivity, and reduce investment. Moreover, when

growth is concentrated in the wealthiest income brackets, it counts less towards

improving overall economic welfare because the social and economic benefits of big-

ticket items purchased by the super-rich tend as much as increases in spending on

items that allow revenue to circulate through the economy more broadly.

The GPI accounts for income inequality by discountingor calculating the presentvalue of anticipated future cash flows personal consumption expenditures by the
http://genuineprogress.net/resources/the-genuine-progress-indicator-2006/http://genuineprogress.net/resources/the-genuine-progress-indicator-2006/


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amount of inequality that persists in a given year using the Gini and income

distribution indices (IDI).

The Gini index ranges from 0, where every household has the same income, to 1

where one household has all the income. Thus the higher the Gini index the greater

the income inequality, or the greater the portion of aggregate income earned by thetop household income bracket. The Gini index aggregates data into a single statistic,

which summarizes the dispersion across the entire income distribution. The Gini

index is published regularly by the U.S. Census Bureau. The IDI simply measures

the relative change in the Gini index. It is set at a value of 100 in 1968, the year the

Gini index was at its lowest value.

Adjusted Personal Consumption

Adjusted personal consumption is calculated by dividing personal consumption

expenditures by the income distribution index and multiplying it by 100. Adjusted

personal consumption then becomes the base number from which the remainingColumns in the GPI are either added or subtracted.

Cost of Consumer Durables

The actual expenditures on consumer durables are a negative adjustment in the

GPI to avoid double counting the value of their services (See Value of Consumer

Durables).

Value of Consumer Durables

The money spent on durable items, such as cars, refrigerators, and otherappliances is not a good measure of the actual value consumers receive from them.

It is important to take account, as well, of how long the item lasts. For example,

when you buy a furnace or a dishwasher, you do not consume it in one year. The

appliance (or consumer durable) provides service for a number of years. Because

of this, the GPI treats the services of household capital as a benefit and the initial

purchase price as a cost. This column adds the annual services derived from

consumer durables, which economic theory defines as the sum of the depreciation

rate and the interest rate. If a product lasts eight years, it depreciates at 12.5

percent per year and thus provides that much of its service each year. At the same

time, if the interest rate is 5 percent, the purchaser of the product could havereceived that much interest by putting the money into the bank instead.

Economists therefore regard the interest rate as part of the monetary value of the

product to the consumer.

Based on an assumed depreciation rate of 15 percent and an average interest rate

of 7.5 percent, the value of services from household capital is estimated at 22.5

percent of the value of the net stock of cars, appliances, and furniture at the end of

each year as estimated by the Bureau of Economic Analysis. To avoid double

counting, we make an adjustment by subtracting out actual expenditures on

consumer durables. Focusing on annual services that household appliances and

equipment provide rather than on the purchase price corrects the way the GDP

treats money spent on durables. The value of services from consumer durables is


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treated as a benefit and is thus an addition to the GPI account. The benefit from

household capital is generally the GPIs third largest addition to personal

consumption. (See the column Cost of Consumer Durables for more.)

Cost of Underemployment

The GPI does not deal with the effects of short-term and cyclical unemployment.

Although such hardships are not without social consequences and costs, much of

the financial hardship is mitigated by unemployment insurance benefits.

Underemployment is a more inclusive concept than unemployment. It refers to

persons who are either chronically unemployed, discouraged (gave up looking for

work), involuntary part-time (would prefer full-time work but are unable to find it),

or constrained by other factors, such as lack of child care or transportation. The

costs of underemployment fall on the discouraged workers and their families. But

the community and society also pay a price when limited work opportunities may

lead to frustration, suicide, violence, crime, mental illness, or alcoholism and othersubstance abuse. The GPI treats each hour of underemployment (the number of

unprovided hours for constrained workers) as a cost, just as leisure time is

considered a benefit. An hour of leisure time is a desirable objective whereas an

hour of underemployment is a burden.

Net Capital Investment

The economic sustainability of a nation is affected by the extent to which it relies on

foreign funding to finance its current consumption. A nation that borrows from

abroad to pay for a spending spree will feel rich for a short time. But the illusion of

wealth will vanish when the debt comes due or when the value of the currency

drops as foreign investors lose confidence in that nations ability to repay itsloans.

This indicator measures the amount that Americans invest overseas minus the

amount foreigners invest in the United States, or the net change in our

international investment position. The annual change indicates whether the U.S. is

moving in the direction of net lending (if positive) or net borrowing (if negative). If

the change is positive, the U.S. has in effect increased its capital assets. If it is

negative, part of U.S. capital formation is in fact based on wealth borrowed from

abroad that must eventually be repaid with interest. We have thus included annual

changes in the net international position as a measure of the long-term viability ofour economy.

The GPI accounts track the change in the five year rolling average of net

international investment position from the Bureau of Economic Analysis and add or

subtract this change depending on its sign

3.4.3.2 Environmental

Environmental quality matters. The GPI factors in the cost of air and water

pollution and value of lost forests, wetlands and farmland so we can more fully

evaluate the true impacts of our factories, car exhaust and urban sprawl. By takingthese costs into account, GPI will help reverse these harmful policies.


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Environmental Indicators

Cost of Water Pollution

Cost of Air Pollution

Cost of Noise Pollution

Loss of Wetlands

Loss of Farmland

Loss of Primary Forests and Damage from Logging Roads

Carbon Dioxide Emissions Damage

Cost of Ozone Depletion

Depletion of Non-Renewable Resources

Cost of Water Pollution

Water is the one of the most precious of all environmental assets, yet the national

income accounts provide neither an inventory of the quantity or quality of water

resources nor an account for the cost of damage to water quality. In the GPI

framework, the costs of water pollution arise from (1) damage to water quality and

(2) damage from siltation which reduces the life span of water impoundments or

channels. Although this may involve some double counting (insofar as siltation also

damages water quality), on the whole the estimates in this column understatedamage because of the lack of data on non-point sources of pollution.

Cost of Air Pollution

The annual economic cost of air pollution to households, infrastructure, the

environment, and human health is a typical example of an environmental

externalitya cost that lies outside the boundary of the traditional national

accounts. It represents a significant omission from conventional economic

indicators like the GDP. The GPI corrects for this. The damage estimate includes

damage to agricultural vegetation, materials damage (to paint, metals, rubber),

costs of cleaning soiled goods, acid rain damage (both aquatic and forest losses),reduced property values and wage differentials, and aesthetics.

Since 1975, the decline in emissions of sulfur dioxide and particulates (which

outweigh the small increase in nitrogen dioxide emissions) suggests a decreasing

economic cost of air pollution for these three emissions.

Cost of Noise Pollution

While the U.S. has noise pollution regulations, there are no official inventories of its

extent or severity. The damage caused by noise pollution in the U.S. in 1972 was

estimated at $4 billion by the World Health Organization. Starting with thatestimate, we assumed that the quality of the auditory environment declined by 3

percent per year from 1950 to 1972, based on industrialization and increased noise


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emissions from motor vehicles and airplanes. From 1972 to 1994, noise abatement

regulations are assumed to have reduced the rate of deterioration to 1 percent per

year, but not to have improved it. With no new noise pollution data since the 1995

GPI estimates, we assume a constant rate of decline in the auditory environment at

1 percent per annum.

Loss of Wetlands

Wetlands contain some of the most productive habitat in the world. Yet their value

is not represented in economic accounts because the benefitssuch as regulating

and purifying water and providing habitat for fish and waterfowlare generally

public goods, for which there is no overt price. When a farmer drains and fills a

marsh, the GDP rises by the increased output of the farm. However, the loss of

services from the wetland goes uncounted. The GPI rectifies this by estimating the

value of the services that are given up when wetlands acreage is converted to other

purposes.

Loss of Farmland

Loss of either natural or human-built capital generates costs to both present and

future generations in the form of lost services from that capital. By destroying

farmland, we are losing a vital ecosystem service a sustainable food supply.

Farmland losses also generate costs in the form of lost scenic, aesthetic, and

historic values, increased flooding, deterioration in water quality, and degradation

of wildlife habitat. In the GPI accounts, we address farmland losses resulting from

urbanization and lost productivity.

The cumulative loss figure is obtained by multiplying each years value per acre by

the acres lost in that year, then adding it to the previous years loss. As with

wetlands, the reason for tracking cumulative, and not marginal losses, is the fact

that we are still incurring the costs of farmland lost in 1950, 1960, etc. because we

are no longer receiving the stream of benefits these lands once conferred (and still

could if they are restored). The GPI assumes that the initial pre-1950 loss was

roughly $3.31 billion.

Urbanization removes the productive potential of farmland in a highly visible way.

But it may not be as serious in the long run as the deterioration of soil due to poor

management. The decline of soil quality over the past 50-60 years has been maskedby higher inputs of fertilizer, pesticides, and fuel. In addition, soil depletion is not

necessarily linear. It may not show up gradually in yield reductions, but rather in a

sudden and irreversible decline.

In addition to urbanization and soil erosion, soil compaction from heavy machinery

is another form of damage to soil. Studies from 1980 estimate the damage from soil

compaction at $3.0 billion in 1980 dollars, or $5.5 billion in 2000 dollars. We

assumed a 3 percent increase per year in the losses due to compaction prior to and

following 1980.


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Loss of Primary Forests and Damage from Logging Roads

Whenever native, or primary forest land is cut for timber, converted into tree

plantations, or cleared to build a road, that forests ability to control floods, purify

air and water, maintain biological and genetic diversity, provide habitat for sensitive

species, produce non-timber forest products or provide scenic, recreational, andaesthetic values to nearby communities is impaired or lost forever. The GPI

accounts measure this loss by assigning a price tag to year by year estimates of key

primary forest losses and adding such losses to the cumulative damage from

previous years. In particular, we assign costs to the loss of longleaf pine forests in

the southeastern U.S., old growth forests in the Pacific Northwest, Sierras, and

southeast Alaska, and inventoried roadless areas on national forests.

Carbon Dioxide Emissions Damage

Few scientists dispute the link between carbon dioxide emissions and global

warming or the link between global warming and increasing incidence and severityof damaging storms, floods, and droughts. And as hurricanes Katrina, Rita and

Sandy have illustrated all too well, this erratic weather is exacting an enormous

economic toll each year on our households, infrastructure, and natural capital. As

the incidence of severe weather events escalates, the costs in insurance payouts

and replacing lost or damaged homes, buildings, livestock, and other household

resources mount. Ironically, these natural disturbances result in a positive

feedback loop whereby increasing frequency and intensity of storms and other

severe weather leads to increasing use of natural capital resources as we rebuild

shattered homes and infrastructure in the aftermath. Yet neither the cost of our

impacts on the Earths climate, nor the increasing costs of cleaning up after the

storm, nor the increased depletion of natures capital is accounted for by GDP.

The GPI attempts to address this oversight by assigning costs to carbon

emissions. But what price do we put on a ton of carbon? There are many ongoing

studies that attempt to calculate economic damages per ton of carbon emitted into

the atmosphere through our burning of fossil fuels. In one recent meta-analysis of

103 separate studies, Tol (2005) found a mean of $93 per metric ton, or $89.57 in

year 2000 dollars. Though hotly debated, we adopt this figure as a conservative

starting point for incorporating carbon emissions damages into GPI accounts. This

is the second largest cost included in the GPI.

Cost of Ozone Depletion

While annual production of CFCs may have declined dramatically, the cumulative

impacts on the depletion of the earths ozone layer continues.

There are no definitive studies showing the combined health and ecological

consequences of ozone depletion over the next half century. However, scientists

warn that the ozone loss could result in increased exposure to harmful solar

radiation that can destroy plants and cause cataracts and skin cancer in humans.

Given the potentially catastrophic effects on all forms of life, the GPI includes anestimate reflecting our expectation of the economic costs associated with this long-

term environmental problem$49,669 per ton.


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Depletion of Non-Renewable Resources

The depletion of nonrenewable resources is a cost shifted to future generations that

should be borne in the present. Nonrenewable natural capital cannot be increased;

it can only be diminished. Our current accounting system counts our liquidation of

natural capital wealth as income. A prudent approach to sustaining the income andwellbeing of Americas households would require investment of a portion of the net

rents derived from, for example, mining nonrenewable natural capital into

sustainable renewable energy and productivity or energy efficiency gains. In this

vein, the GPI uses estimates of renewable energy replacement costsspecifically

biomass fuel production costs as an approximation for the costs of depleting

nonrenewable energy reserves, because biomass fuel tends to comprise the largest

share of the renewable energy market in annual data compiled by the Energy

Information Administration.

The longer we defer investment in renewable energy resources, the greater the

economic impact on the well-being of current and future American households

when those resources run dry.

3.4.3.3 Social

Quality of life matters. Every family wants a safe neighborhood, efficient

transportation, and gainful employment. The GPI registers these important

components of our well being, while more accurately assessing things we all value,

like housework, leisure time and good roads.

Social Indicators

Value of Housework Work and Parenting

Cost of Family Changes

Cost of Crime

Cost of Household Pollution Abatement

Value of Volunteer Work

Loss of Leisure Time

Value of a Higher Education

Value of Highways & Streets

Cost of Commuting

Cost of Automobile Accidents

Value of Housework Work and Parenting

Much of the work performed in households is more essential than much of the workdone in offices, factories, and stores. Yet most of this valuable work goes uncounted

in GDP. However, commercial childcare in the monetized service sector adds to


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the GDP. Parents regularly make calculations around whether or not it is worth it

to stay at home and care for a child or pay someone else to care for their child.

These calculations and their consequences are nowhere to be found in our GDP.

Other unpaid household labor, such as the physical maintenance of the housing

stock (from cleaning to light repairs), also constitutes valuable economic activity.

The GPI corrects for this lost calculation in GDP. The value of household labor in

the GPI is derived from the amount that a family would have to pay to hire someone

else to do equivalent work in their home.

Cost of Family Changes

Families are affected by the society around them. If that society is healthy, with

plenty of economic opportunities for all, many families remain intact. Changes in

the society around them often show up first in family changes. The GPI brings this

information into focus in order to ensure that those indicators that measure familylifeincluding the purchase of household goods and time spent with familyare fully

understood, and in order to avoid double-counting when dual parent households

split and become single parent households.

Cost of Crime

Crime takes a large economic toll on society. Some of these costs are obvious, such

as medical expenses and lost property. But others are more elusive, because they

are psychological, such as the trauma of being violated, or are incurred in the form

of lost opportunities, such as activities foregone because people fear the possibility

of theft or violence. The GPI relies on the Bureau of Justice Statistics NationalCrime Survey year to year estimates of the cost of crime to victims in terms of their

out-of-pocket expenditures or the value of stolen property. Undoubtedly, the full

cost of crime is underestimated given the absence of estimates of the more elusive

costs.

We also include other defensive expenditures on locks, burglar alarms, security

devices, and security services. Most of us would not otherwise purchase these

personal, household, or business security items. In the GPI we subtract these

expenditures on crime prevention because they represent personal consumption

that does not add to the well-being of our households but merely prevents itsdeterioration or violation.

Cost of Household Pollution Abatement

One of the costs that pollution imposes on the households of the nation is the

expenditures made for equipment such as air and water filters. These defensive

expenditures do not improve the well-being of households, but merely compensate

for the externalitiesthat is, pollutionimposed upon them as a result of economic

activity. Such expenditures merely attempt to restore environmental quality to a

baseline level.


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Value of Volunteer Work

Volunteers are the glue that keeps much of our social fabric together. Such work is

not only performed at home, but also in the broader realm of our neighborhoods

and communities. Work done here is the nations informal safety net, the invisible

social matrix on which a healthy market economy depends. Whether eachadditional lawyer, broker, or advertising account executive represents a net gain for

the nation is arguable. But there is little question that, workers in the underserved

community and volunteer sectorsthe churches and synagogues, schools, civic

associations and informal neighborly effortsare doing work that is desperately

needed. Despite its crucial contribution, however, this work goes entirely

unmeasured in the GDP. The GPI begins to correct this omission.

Loss of Leisure Time

The GDP creates the illusion that the nation is getting richer, when in fact people

are working harder to produce and buy more and to pay interest on mountingpersonal indebtedness. People often complain that they are spending too much time

on the job, with too little left for family, chores, or leisure. And with good reason:

they are. Since the 1980s, our time spent on leisure has been gobbled up by longer

work hours. A more accurate measure of genuine progress and well-being would

consider the loss of leisure that went along with increased output. Accounting for

the nations well-being ought to include the value of leisure time lost or gained.

In order to provide a reasonable estimate, the GPI includes only the value of leisure

lost in relation to 1969, the year with the greatest leisure since 1950.

Value of a Higher Education

The value of higher education is both monetary and non-monetary. It can be

measured in the form of increases in the stock of knowledge, productivity of

workers and capital, civic participation, job market efficiency, savings rates,

research and development activities, charitable giving, and health. Some estimates

suggest the total value of this social spillover effect to be $16,000 per year per

college-educated worker. This represents the GPIs second largest addition to

personal consumption expenditures.

Value of Highways & Streets

The GPI does not include most government expenditures since they are largely

defensive in nature; they protect against erosions in the quality of life, rather than

enhancing it.

On the other hand, some government activities, such as transit systems and sewer

or water districts, provide services for a fee in a manner similar to private business.

These fees show up in personal consumption figures in the national income

accounts and thus are already included in column B. This leaves other government

services that could be sold in theory, but are difficult to price with regard to

individual users.


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Overwhelmingly, the largest item in that category is the use of streets and highways,

which we include here as a separate GPI category. The annual value of services

from highways and streets is derived the Bureau of Economic Analysis figures of the

net stock of federal, state, and local government streets and highways. The annual

value of services from streets and highways is estimated by taking 7.5 percent of

the net stock value. This is based on the logic that around 10 percent of the netstock (2.5 percent for depreciation and 7.5 percent for average interest rates) is the

estimated annual value of all services from streets and highways. However, since we

assumed that 25 percent of all vehicle miles are for commuting (a defensive

expenditure), this leaves 75 percent as net benefits. Thus the GPI assumes the net

service value of streets and highways is 75 percent of 10 percent, or 7.5 percent of

net stock.

Cost of Commuting

Urban sprawl has put more cars on the road, exacerbated traffic congestion,

decreased air quality, and increased the time Americans must spend getting to and

from work. According to the U.S. Department of Transportation, there has been a

66% increase in the number of vehicles per household and significant increases in

commute times since 1960. While commuting is for most people an unsatisfying

and sometimes frustrating experience, the GDP treats it as a benefit to consumers.

The more time and money spent commuting, the more these regrettable activities

contribute to the GDP. Moreover, GDP does not account for the opportunity costs of

time spent commuting; time that could be spent freely with family, at leisure,

sleeping, or at work.

The GPI corrects for the shortcoming of the GDP account by subtracting the cost ofcommuting. There are two distinct types of costs incurred in commuting. The first is

the money spent to pay for the vehicle, or for bus or train fare; the second is the

time lost that might have been spent on other, more enjoyable or productive

activities. In the GPI accounts, the direct (out-of-pocket) costs of commuting are a

function of the portion of non-commercial vehicle miles used in commuting, the

cost of user operated transport, the cost of depreciation of private cars, the portion

of passenger miles on public transportation used for commuting, and the price of

purchased local transportation. Data for these variables were taken from the

Statistical Abstract of the United States and BEAs National Income and Product

Accounts

Cost of Automobile Accidents

The damage and economic loss due to automobile accidents represents a real cost

of industrialization and increasing traffic densities. Economic losses peaked in

1996 at $206.98 billion.


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4.ANALYSIS AND INTERPRETATION4.1 CALCULATION OF GPI

The GPI begins with a measure of personal consumption, weighted to account for

income inequality and deducts or adds value for various monetised measures ofbuilt, human, social and natural capital. This can be expressed in the form of theequation (adapted from Hanley et al., 1999):

GPI = Cadj + G + WDSEN (1)

where,

Cadj - the personal consumption adjusted to account for income distributionG - the growth in capital and net change in international positionW - the non-monetary contributions to welfare (e.g. household labour and volunteer work)D - the defensive private expenditures, S is the depletion of social capital (e.g. cost of crime,

family breakdown and lost leisure time)E - the costs of environmental degradationN-the depletion of natural capital.

The inclusion of these components makes GPI better suited than GDP in addressingquestions of distribution, societal well-being and sustainability within the economy.Daly, Cobb and subsequent authors found that welfare as measured by the GPIgrew, though not as quickly as GDP, until the mid-1970s, and has since levelled offor declined slightly. These results agreed with Max-Neef (1995) thresholdhypothesis, which statesthat economic growth improves quality of life up to a point,but eventually erodes environmental and social quality, reducing quality of life.Studies in numerous other nations corroborated these findings (Jackson and tymne,

1996).

4.2 CASE STUDY: GENUINE PROGRESS INDICATOR ESTIMATES FOR

VERMONTSNORTHERN FOREST REGION

4.2.1 Study area and methods

The USA Northern Forest eco region encompasses over 100,000 km2 across 27counties in northern Maine, New Hampshire, New York and Vermont. Organizationsincluding the Northern Forest Alliance and Northern Forest Center are working tobuild sustainable local economies while protecting and restoring the regions

natural setting. Part of this vision includes a future where the traditional patternsof land ownership and use are maintained to provide future generations with thesame benefits we enjoy today (Northern Forest Lands Council, 1994). Usingconventional economic measures, the Northern Forest contributes $19.5 USAbillion annually to the regions economy through forest-based manufacturing,tourism and recreation (North East State Foresters Association, 2004).

In Vermont, six counties Caledonia, Essex, Franklin, Lamoille, Orleans andWashington are included in the Northern Forest (Figure 1). These counties arecharacterised by low population density, abundant forest cover and a settlementpattern of small New England town centres. The Northern Forest economy wastraditionally centred around farming, forestry and production of forest products.

Tourism and outdoor recreation have become increasingly important in recent yearsand many Northern Forest towns today are working to improve local employmentopportunities while preserving the regions environmental and cultural character.


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The three easternmost counties of Caledonia, Essex and Orleans constitute a ratherhomogeneous and geographically isolated area in Northeastern Vermont that isknown as the Northeast Kingdom. Intense efforts are ongoing to brand this area asa tourist destination. By contrast, in Chittenden County, the subject of a prior localGPI study, is relatively urban by Vermont and Northern Forest standards (Table 1).Chittenden County is the Vermonts most populouscounty. It includes the stateslargest city, Burlington, as well as the largest employers in the state.

To calculate the GPI for the Northern Forest counties, we strove to maintainconsistency by following the methods of Costanza et al. (2004), who in turn followedthose of Anielski and Rowe (1999). Since Anielski and Rowes calculations were atthe national level, Costanza et al.s local-level adjustments were used as appropriate.When improved data sources or methods were available, we noted these changes.Following Costanza et al., we calculate values for the decennial years 19502000,for the 26 components of GPI for the six Northern Forest counties in Vermont(Caledonia, Essex, Franklin, Lamoille, Orleans and Washington). Where there werechanges in methods or data sources, we also recalculated values for ChittendenCounty to allow comparison between a relatively urban county (Chittenden) to morerural counties of northern Vermont. As such we discuss GPI results from seven ofVermonts 14 counties. All monetary valueswere converted into the year 2000 USAdollars using the Consumer Price Index (CPI) from the USA, Bureau of Labour


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Statistics (BLS). GPI components and methods are summarized in Table 2. Detailedmethods and data sources used to calculate each of the 26 GPI components areavailable as an online appendix available at:http://www.uvm.edu/giee/special/gpi.htm.


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Table 2GPI Components and Calculation methods


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One notable change from Costanza et al. was our use of the methods of Talberth,Cobb and Slattery (2007) to calculate long-term environmental damage costs. Thismethod uses a $89.57 per ton CO2 equivalent cost, based on a survey of recentstudies (Tol, 2005) on the economics of climate change. This value decreases in

years prior to 2000, reflecting the increasing marginal costs of greenhouse gasemissions, and replaces the $2.56/barrel tax on all forms of energy consumption.We believe this is a less arbitrary measure of the cost of climate change. Furtherdetail on this component is provided in the above mentioned online appendix.

4.2.2 Results

The results are reported similarly to Costanza et al. (2004), who grouped the 26 GPIcomponents into eight functional groups:

1 income (components AC)2 households (components D, E, F, L, N)3 mobility (components G, M, O)

4 social capital (components HK)5 pollution (components PR)6 land loss (components S, T, X)7 natural capital (components UW)8 net investment (components Y and Z).

Per capita results for these eight component groups are shown in Table 3.


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Table 3GPI functional groups

Vermonts per capita GPI is greater than the US average, with Chittenden Countyhaving the highest GPI of any Vermont county (Figure 2). Interestingly, GPI in themost rural counties (Caledonia, Essex and Orleans) was below the USA average in

1950 but had risen above the national average by 2000. For all Vermont counties,per capita GPI has increased at a faster rate than the USA average, suggesting thatthe growth in Vermonts consumption has not led to inequality, social andenvironmental disamenities that have caused USA GPI to grow slowly.


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Fig.3Per capita GPI

Income in Vermont is generally below the USA average, with the exception ofChittenden County, but inequality is also below the USA average. This makesadjusted personal consumption expenditures in some counties approach the

national level. Not surprisingly, the generally poorer rural counties have personalconsumption levels below the state average.County level household work and capital per capita did not differ greatly fromnational and state-level values. Costs and services of consumer durables are less inrural counties with lower incomes, as was the cost of household pollutionabatement. Mobility costs per capita are greatest in Chittenden County and least inthe most rural counties. This reflects greater per capita value of services ofhighways and streets in rural counties combined with lower costs of commutingand crashes in highly rural areas.Per capita social capital costs do not differ greatly among the six counties. Vermonthas lower crime and family breakdown costs than the national average, but moreunderemployment and leisure time loss than the national average. Rural counties

had consistently lower crime rates but higher costs of underemployment.The per capita cost of pollution was actually greater than the national average insome Vermont counties. In some cases, this is due to high costs of air pollutiondamage to abundant forest resources, combined with low population. Thus,although rural Vermont counties may have low ambient pollution levels, per capitadamage costs may be high. Land loss per capita was similarly high for the mostrural counties, owing to their small populations and high per capita costs ofwetland and farmland loss. However, the rate of land loss has been slow since1950s, with per capita costs steadily decreasing. Finally, per capita natural capitaldepletion was substantially less in Vermont than the USA average. This is driven byVermonts below-average consumption of fossil fuels.

4.2.3 Interpreting Genuine Progress Indicator results for northern Vermont

This study is the first local GPI calculation for a USA rural area. While we cannot


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generalise our findings to other larger urbanrural gradients or rural regions in theUSA, rural Vermont generally had lower income (hence, personal consumption),generated less solid waste, had less air, water and noise pollution, and less forestand wetland loss, though not all these patterns held on a per capita basis. Due totheir lower personal consumption, GPI was lower in rural counties than in urbanChittenden County, but rural counties lost less welfare due to environmentaldamage. This highlights the fact that GPI as an indicator remains largely driven bypersonal consumption. Other highly influential components that generallydeducted or contributed $1,000 or more to per capita GPI included the value ofhousehold labour, services of household capital, leisure time loss, consumerdurables spending, costs of air pollution, wetland loss and depletion ofnonrenewable resources. Minimally influential components that deducted orcontributed less than $100 to per capita GPI included volunteer work, cost of crime,water pollution, noise pollution, farmland loss and ozone depletion (Figure 4).

Fig.4Contribution of other GPI components

Unfortunately, data limitations obscure many of the local distinctions that weexpect to exist in these rural counties. We believe social capital (includinghousehold labour, volunteer work, crime and leisure time loss) may be greater inrural areas than urban areas. While rural areas have less crime, we did not havedata for many other social components at the local level (hours of household labour,volunteer work or on the job, and defensive spending to deter crime). For manycomponents, surveys could be designed and implemented to obtain such data onrural vs. urban quality of life. Lastly, rural areas showed substantially lowerabsolute levels of air, water and noise pollution than urban areas. However,especially for air and noise pollution, the methods used were problematic and betterapplicable at the scale of larger urban areas.

Various non-monetary indicators have been developed to monitor socio-economicwell-being in the Northern Forest. Non-monetary assessments provide an important

benchmark for comparing and confirming general GPI trends. For example, theNorthern Forest Wealth Index, an array of non-monetary indicators developed bythe Northern Forest Center (2000), measures social capital as percent of registered


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voters. Voter participation was consistently higher in Northern Forest countiesacross the states of New York, Vermont, New Hampshire and Maine during the1998 general election.Similarly, lower income and lower property, and violent crime rates were reportedfor all Northern Forest counties across the four states. The most comprehensivestudy comparing a Northern Forest region to more urbanized areas outside of theNorthern Forest was conducted for the Adirondack region in the New York state(Northup, 1997). Not surprisingly, the study stressed the high quality of naturalassets and social capital in the Adirondack Park, with the lowest crime and divorcerates in the state. Healthcare though, a crucial indicator that is not included in theGPI, scored lowest in this Northern Forest region than elsewhere in the state, withhighest percentage of teen pregnancies and lowest number of physicians. Povertylevels were higher and the percentage of individuals holding college degrees waslowest. The above-mentioned studies faced difficulties in aggregating the values forall the indicators across multiple dimensions of well-being, a challenge to which GPIis well suited.

4.3 CHALLENGES IN APPLYING THE GPI AT LOCAL SCALES

In evaluating the GPI, past authors have raised questions about the theory, dataquality and methods used to calculate GPI. These issues are also relevant for localto regional scale GPI calculations.

Like nations, sub-national political jurisdictions of all sizes are increasinglyinterested in measuring quality of life and in developing policies to support socialwell-being. At least in industrialised nations, these economies are open and oftensmall. Many fiscal, social and environmental policy choices take place at thenational level, and greatly affect well-being at local scales. Yet local jurisdictionsalso make similarly important decisions.

For example, a state or province can use tax policy to encourage or discourageemployment in certain economic sectors. A county or municipality can make landuse or resource extraction decisions that liquidate natural capital in favour ofsometimes short term employment gains. In other cases, local jurisdictions maychoose to adopt more stringent environmental or social goals than the federalmandate. Since GPI aggregates a broad suite of economic, social and environmentalindicators, it can be used as a tool, e.g. to compare well-being in between two ormore regions with different policies. GPIs ability to aggregate an otherwise diverseset of indicators is an important strength as a measure of well-being.

Two main challenges in applying GPI at local scales are:

Data limitations and confidence in historical data Relevance at local scales


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5.FINDINGS AND RECOMMENDATIONSBelow listed are the findings and recommendations that are the outcome of the

Vermonts GPI estimate:

5.1 GPI highlights effects of local policy on well-being

Given the importance of regional and local policy on well-being, local GPImeasurements can be used to identify areas where observed differences incomponents of well-being might result from certain series of policy choices. While itis difficult to ascribe changes in well-being itself or as measured by the GPI to anyindividual policy choice, GPI can identify components where a region is performingmore strongly than nearby regions or the national average. In many regions,qualitative sets of well-being indicators are being developed. These indicators spanthe range of social, economic and environmental performance or human, social,natural and built capital. GPI can complement existing indicators, offering anintegrative, quantitative measure of well-being. One of the major strengths of using

GPI is its ability to aggregate values using monetary figures as a common unit.

5.2 GPI can facilitate inter-regional comparisons

If applied carefully, inter-regional comparisons may be of value to researchers,policymakers and citizens alike. Such comparisons can aid in assessing well-beingas measured by the GPI, as well as in comparing certain GPI components. To makemeaningful comparisons between two or more localities or regions, studies mustuse the same methods and have enough local data to avoid reliance on scaled downdata that obscures local differences. Like GDP, total GPI will automatically be largerin economically larger regions as compared to small regions. Thus, GPI should be

compared on a per-capita basis.

Differences in methods, components included, valuation techniques and dataquality and availability mean that comparing local GPI between nations are notappropriate. Indeed, GPI researchers at the national level have rarely madecomparisons between nations for these reasons, preferring to focus on trends in GPIand sometimes comparing changes in GPI to that of GDP.

5.3 Government collected data availability

Recent data for states, counties and cities are often best obtained from state-leveleconomic, transportation, labour and natural resources agencies, many of which

have improved their data collection and dissemination in recent years.Unfortunately, this means that earlier annual data is often not available. Inaddition, since data often come from different agencies, the most recent availabledates may differ. More responsive data collection and reporting by such agencieswould improve the timeliness of calculated GPI estimates.

5.4 Incorporating commercially available data in GPI estimates

Time use, demographic and environmental data used for the GPI are oftencalculated by government agencies, and are generally freely available. However, GPI

also relies on consumer spending data for several important components. Suchdata are often compiled by national statistics agencies, but are rarely available atlocal scales. In the USA and likely in other industrialised nations, such data are


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compiled by commercial market research firms. These data are available forpurchase. The cost of such data should be considered up front by researchersinterested in estimating local scale GPI, particularly in the USA. It is to be notedthat commercial data are not included for the estimates of Vermont county level GPI.

Most of the problems with data quality and availability concerns are successfully

addressed and high quality local GPI estimates are possible, using recent

commercial data. Yet relatively high confidence can be placed in regional GPI

comparisons for recent years that incorporate local consumer spending data. As an

alternative to commercially generated data, it may also be possible to estimate

overall consumer spending from local tax receipt data.

6.CONCLUSIONThe GPI and ISEW, originally developed for use at the national scale, are

increasingly being estimated at local and regional scales. Such studies are anoutgrowth of growing interest in measuring and promoting quality of life or well-being through sets of indicators as well as integrative measures like GPI. Based ona case study in northern Vermont, we conclude that there are important limitationsin data quality and methods that should be strongly considered before applying GPIlocally. In particular, when local data is lacking, national or state level estimatesmust be used and scaled down, reducingthe comparative value of local estimates.


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REFERENCES

www.green.maryland.govmdgpiwhatisthegpi.asp genuineprogress.net/

Int. J. Environment, Workplace and Employment, Vol. 3, No. 2, 2007

Ecological Economics 44 (2003) 105-118

Ecological Economics 93 (2013) 5768

www.elsevier.com/locate/ecolecon

Environment, Development and Sustainability (2005) 7: 185208

en.wikipedia.org/wiki/Genuine_progress_indicator

www.anielski.com/gpi-reports/
http://www.elsevier.com/locate/ecoleconhttp://www.elsevier.com/locate/ecolecon

final report - gpi

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