# **_4.4. The choice of deflators_**

The fourth issue in aligning the capital estimates from the OECD and World Bank works is related to the choice of exchange rates to ensure the comparisons being made based on a common metric (currency).

The World Bank applied the market exchange rates (MER, in constant 2005 U.S. dollar prices) for this purpose, because the World Bank estimates are primarily aimed at making comparisons across broad income groups and to analyze a country’s wealth over time – its volume and composition – but with less focus on making comparisons between individual countries (World Bank, 2011). On the contrary, the OECD project used the purchasing power parities (PPPs) for private consumption to serve this purpose, as its focus is made on comparisons across countries.

Since this paper is primarily concerned with showing the pattern of wealth distribution within a country when human capital is included, we therefore estimate human capital using the MERs instead of the PPPs, to be consistent with the estimates for other assets in the World Bank’s accounts.

# **5. The wealth decomposition with human capital included**

Estimates of the composition of national wealth with human capital included, for the thirteen selected countries in 2005, are presented in Table 3. The estimates of the total wealth and net foreign assets are directly drawn from the World Bank wealth accounts, while the estimates for human capital are the OECD ones, as included in Liu (2011) after the adjustments described above. The value of the ‘intangible residual’ is calculated as the difference between total wealth and the sum of all of the other asset values.<sup>11</sup>

**Table 3. Wealth decomposition, 2005 (level in nominal US$ per capita by MER and share in percentage), Discount rate = 4.58% for both natural and human capital**

|**US$**<br>**(%)**|**Produced**<br>**capital**|**Natural**<br>**capital**|**Net foreign**<br>**assets**|**Human**<br>**capital**|**Intangible**<br>**residual**|**Total**<br>**wealth**|
|---|---|---|---|---|---|---|
|CAN|89,811<br>(16.7)|34,761<br>(6.5)|-2,977<br>(-0.6)|349,838<br>(64.9)|67,263<br>(12.5)|538,697<br>(100)|
|FRA|93,619<br>(16.0)|8,105<br>(1.4)|2,561<br>(0.4)|339,261<br>(57.9)|142,901<br>(24.4)|586,448<br>(100)|
|ISR|<br>47,232<br>(14.4)|<br>4,559<br>(1.4)|<br>-3,495<br>(-1.1)|<br>197,238<br>(60.2)|<br>81,937<br>(25.0)|<br>327,471<br>(100)|
|ITA|<br>89,860<br>(18.0)|<br>7,063<br>(1.4)|<br>-4,533<br>(-0.9)|<br>269,241<br>(54.0)|<br>136,647<br>(27.4)|<br>498,277<br>(100)|
|KOR|58,636<br>(23.6)|2,487<br>(1.0)|-3,252<br>(-1.3)|288,887<br>(116.4)|-98,578<br>(-39.7)|248,180<br>(100)|
|NLD|<br>109,658<br>(18.5)|<br>12,421<br>(2.1)|<br>-1,676<br>(-0.3)|<br>332,930<br>(56.1)|<br>140,214<br>(23.6)|<br>593,547<br>(100)|
|NZL|76,281<br>(18.4)|49,875<br>(12.0)|-21,271<br>(-5.1)|305,094<br>(73.7)|4,133<br>(1.0)|414,113<br>(100)|
|NOR|183,078<br>(21.2)|103,708<br>(12.0)|36,436<br>(4.2)|503,204<br>(58.4)|35,371<br>(4.1)|861,797<br>(100)|
|POL|<br>20,526<br>(15.1)|<br>8,373<br>(6.2)|<br>-3,414<br>(-2.5)|<br>98,268<br>(72.3)|<br>12,188<br>(9.0)|<br>135,941<br>(100)|

11. Tables 4 and 5 in Annex III present a sensitivity analysis of the wealth decomposition using 4% and 5% as the discount rate for both natural and human capital.. Given the narrow range of discount rates used, the results are very similar to what is presented in Table 3.

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