Accounting for the Wealth of Nations: The Net versus Gross Output Controversy and Its Ramifications.

There has been a longstanding controversy over the use of net versus gross measures of national product in accounting for economic growth, most recently reflected in several papers which have examined.the role of environmental variables. It is argued in this paper that the two measures are not substitutes, but complements which reveal different aspects of the growth process: gross product is the correct output concept for estimating the structure of production, while net product is the correct concept for measuring the welfare consequences of economic growth. An alternative to the conventional Solow growth accounting framework is then presented in which the change in national wealth is decomposed into its component elements. Copyright 1992 by The editors of the Scandinavian Journal of Economics.