Integrating natural capital into system of national accounts for policy analysis: An application of a computable general equilibrium model

- A methodological framework of natural capital integration into system of national accounts is provided.
- The study illustrates application of computable general equilibrium (CGE) modeling in natural capital policy analysis.
- Without natural capital accounting, GDP may give misleading economic growth indicators.
- Natural capital accounting integration into national accounts is critical for sustainable economic growth.

Natural capital is an asset that provides natural resource inputs and environmental services for economic production. Regional patterns of production and consumption have direct and indirect effects on sustainability of its natural capital. Traditional gross domestic product (GDP) estimates fail to explicitly and fully account for natural capital in system of national accounts (SNA). To address this gap, this study builds on United Nation's System of Environmental-Economic Accounting (SEEA) and provides a methodological framework to integrate natural capital into system of national accounts, in input-output table. It further illustrates how natural capital-integrated system of national accounts in input-output table can be used as an effective tool for natural resource management and policy analysis in computable general equilibrium (CGE) modeling framework. Results indicate that, without natural capital accounting and integration into system of national accounts, GDP estimates may give misleading signals as a measure of a region's economic performance, where economic growth could be at the expense of natural capital depletion.