Natural Resource Exploration as Intangible Investment

Natural resources are everywhere, and reported wellbeing is highly correlated with the quantity and quality of natural resource services like weather and biodiversity (Levinson 2012) (MacKerron and Mourato 2013) (Methorst et al. 2021). Yet, natural resources are currently classified as non-produced assets (U.N. Statistics Division sec. 10.14), and therefore natural resource services cannot be attributed to either labor inputs now or capital investment in the past. For those used to thinking about consumption growth as a consequence of labor growth or capital growth, this raises immediate concern that natural resource service growth is unmeasured within the standard gross domestic product (GDP) framework. Furthermore, this concern has evolved into arguments that GDP growth is a fundamentally flawed measure of wellbeing growth (Stiglitz et al. 2009).

This paper proposes a framework where natural resource service growth is attributed to an intangible asset: exploration. For example, a utility might start out with a non-produced watershed and then increase the watershed’s value by searching for the aquifer with the cleanest water. The proposed framework is an adaptation of the framework currently used to track mineral exploration (U.N. Statistics Division sec. 10.106-108). The paper then applies that framework to the U.S. GDP statistics.

Tracking exploration raises measured investment in every year studied but does not change real GDP growth or real consumption growth noticeably. However, real asset growth increases by 0.05 percentage point per year between 1929 and 2019. Due to the faster growth of real assets used in production, for-profit business productivity growth falls by 0.01 percentage point per year between 1948 and 2019. Taken together, these empirical results suggest that broadening the scope of GDP to better track natural resource services does not fundamentally change growth.