An index of sustainable economic welfare (ISEW) for Chile

Chile has experienced a period of strong economic growth. The Gross Domesti c Product (GDP) has doubled in the past 12 years, however, income inequalit y remains relatively the same as in the 1960s. The economic growth is prima rily attributed to the exports of natural resources, which accounts for 80% of total exports. However, the GDP fails to account for the loss of natura l capital and non-marketed services. The objective of this paper is to more clearly indicate the status of the Chilean economy in terms of welfare usi ng the Index of Sustainable Economic Welfare (ISEW) designed by Daly and Co bb (1989). The ISEW provides corrections to the GDP that includes income in equalities, household labor and damage to natural capital. This index has b een applied in several case studies for developed countries. In general, th e results show that ISEW runs parallel with GDP until the 1970s when a decl ine in welfare occurs due to a loss in natural capital. This study is the f irst attempt to utilize the ISEW for the purpose of analyzing whether or no t similar trends exist for Chile, a developing country. The ISEW for Chile grew at a much slower annual rate over the past 30 years, compared with GDP (-0.16% vs. 2.9%). The Chilean ISEW parallels the GDP until the 1980s; a d ecline in the ISEW then occurs, showing that Chile is not on a sustainable path and that there is a strong link between economic growth and the deplet ion of natural resources. (C) 1999 Elsevier Science B.V. All rights reserve d.