Assessing U.S. County Sustainability: Accounting for Heterogeneous Human Capital Flows and Health Quality Within the Inclusive Wealth Framework

Policy needs for more inclusive development measures than GDP have prompted numerous efforts, including those by the World Bank and United Nations, to comprehensively value market and non-market capital assets at a national level. In particular, the Inclusive Wealth (IW) index is an aggregate social value of all capital assets within a country, and non-declining values of IW over time provide an empirical test of weak sustainability. However, the approach ignores the fundamental openness of regions, which implies an interdependence in the flows of people across regions and is therefore limited in its applicability to sub-national scales. I address this critical gap in the IW framework by drawing on key concepts from regional economics, accounting for regional population flows and the resulting change in human capital (HC) within a region. I account for the effects of heterogeneous population change through changes in human capital, health quality, and social capital. I apply this new regional human capital accounting at the county level in the US from 2010-2017 using novel US county health quality data. In contrast to previous studies that proxy health capital with life expectancy, I use novel health data including self-reported number of healthy days per month, to focus on the factors impacting individuals’ health quality. I find that 47% of counties are declining in HC compared to 5.1% of counties using the traditional methods in the literature, implying that not accounting for regional differences vastly overstates sustainability. The main driver of declining HC is declines in health quality that are capitalized into declining productivity.