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Human capital, tangible wealth, and the intangible capital residual

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  • Hamilton, Kirk
  • Liu, Gang

Abstract

Since income is the return on wealth, the total wealth of any given country should be on the order of 20 times its gross domestic product. Instead the average observed ratio from the balance sheet accounts of the System of National Accounts is a factor of 2.6 to 6.6, depending on whether natural resource stocks are included in the balance sheet. The clear implication is that the System of National Accounts wealth accounts are incomplete, with the most obvious omission being human capital. Estimating the value of human capital using the lifetime income approach for a sample of 13 (mostly high-income) countries yields a mean share of human capital in total wealth of 62 percent -- four times the value of produced capital and 15 times the value of natural capital. But for selected high-income countries in the sample there is still an average of 25 percent of total wealth that is unaccounted -- it is neither produced, nor natural, nor human capital. This residual intangible wealth is arguably the"stock equivalent"of total factor productivity -- the value of assets such as institutional quality and social capital that augment the capacity of produced, natural and human capital to support a stream of consumption into the future.

Suggested Citation

  • Hamilton, Kirk & Liu, Gang, 2013. "Human capital, tangible wealth, and the intangible capital residual," Policy Research Working Paper Series 6391, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6391
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    References listed on IDEAS

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    1. World Bank, 2011. "The Changing Wealth of Nations : Measuring Sustainable Development in the New Millennium," World Bank Publications - Books, The World Bank Group, number 2252.
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    Cited by:

    1. Mehmet Nar, 2020. "The Relationship Between Human Capital and Financial Development: A Case Study of Turkey," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(1), pages 157-170, January.
    2. Driouchi, Ahmed & Achehboune, Amale & Gamar, Alae, 2015. "Revealing the Components of the Intangible Wealth for Morocco," MPRA Paper 60904, University Library of Munich, Germany.
    3. John Angle, 2013. "How to Win Acceptance of the Inequality Process as Economics?," IIM Kozhikode Society & Management Review, , vol. 2(2), pages 117-134, July.
    4. Meir Russ & Bino Catas?s, 2014. "Editorial. Intellectual Capital and Management Control: Human Capital Valuation and other challenges," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2014(2), pages 5-21.
    5. Fleisher, Belton M. & McGuire, William H. & Smith, Adam Nicholas & Zhou, Mi, 2013. "Intangible Knowledge Capital and Innovation in China," IZA Discussion Papers 7798, Institute of Labor Economics (IZA).
    6. Fleisher, Belton M. & McGuire, William H. & Smith, Adam Nicholas & Zhou, Mi, 2015. "Knowledge capital, innovation, and growth in China," Journal of Asian Economics, Elsevier, vol. 39(C), pages 31-42.
    7. Mr. Thomas F Alexander & Ms. Claudia H Dziobek & Tadeusz Galeza, 2018. "Sustainable Development Goals (SDGs) and GDP: What National Accounts Bring to the Table," IMF Working Papers 2018/041, International Monetary Fund.

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    Keywords

    Economic Theory&Research; Banks&Banking Reform; Debt Markets; Investment and Investment Climate; Emerging Markets;
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