A striking result in these figures is the very large share of human capital (more than 100% of total wealth) and the negative intangible residual wealth for Korea. There could be several explanations for this. First, Korea has historically enjoyed relatively high annual real income growth, which is reflected in the 3.98% forecast growth rate shown in Table 2.<sup>13</sup> A similar argument may hold for Poland and Spain as well, since their projected income growth rates are also relatively high. Second, and in contrast to all the other countries covered in the OECD project, the educational attainment data for Korea combine educational Level 4 (post-secondary, non-tertiary education) with Level 5B (first stage of tertiary education), while earnings’ data for Level 5B are applied to this combined group, which results in an upward bias to the human capital estimates for Korea.

The intangible wealth residual is small but positive in New Zealand and Norway, 1% and 4% of total wealth respectively. There are no obvious explanations for this low share – both countries have a high proportion of natural capital (which will decrease calculated intangible capital in total, given the wealth accounting methodology), but other countries such as Romania, Canada and Poland also have considerably high shares of natural capital. New Zealand stands out in Figure 2 as having the highest share of human capital after Korea, in spite of a projected real income growth of only 0.77% as shown in Table 2. The other notable feature for New Zealand is the large negative figure for net foreign assets, more than 5% of total wealth. In contrast, Norway’s share of human capital in total wealth is near the sample mean, while it enjoys a positive 5% share of net foreign assets in total wealth.<sup>14</sup>

# **6. Concluding remarks**

We began this analysis by presenting evidence that the SNA balance sheet accounts are substantially incomplete and hypothesizing that human capital makes up the bulk of the missing wealth. By aligning the assumptions underlying the OECD measurement of human capital in Liu (2011) and the measurement of comprehensive wealth published in World Bank (2011), we conclude that this hypothesis is true. At the mean for our sample of selected countries, human capital is nearly four times the value of produced capital, and 15 times the value of natural capital.

By measuring human capital directly, we also greatly enrich the comprehensive wealth accounts of the World Bank, as seen in Table 3. Instead of a high income country average of 81% of total wealth consisting of an intangible capital residual, as seen in Table 1, we have narrowed this residual value to an average of 18% in our sample of countries (excluding Korea). In other terms, we have narrowed the bounds of our ignorance about where is the wealth of nations.

But it would be incorrect to view our new estimate of the intangible wealth of nations as purely a measure of our ignorance. The needed insight comes from the growth accounting literature (which builds upon Solow (1957)), where large percentages of the growth in economic output are ascribed to total factor productivity growth. As measured, TFP growth is another residual quantity, i.e. the difference between real GDP growth and the weighted growth of production factors such as capital and labor. But TFP itself has a clear interpretation as a measure of the efficiency with which 13 . As mentioned in subsection 4.2, the annual income growth rate of 3.98% is calculated as a geometric mean over the period of 1960 – 2017. By using a growth rate of 1.84%, Korea’s growth rate calculated over 1997 -2017, the estimated value of Korean human capital stock would be 27% lower.

14. The low intangible residual for Norway supports Greaker’s (2008) assumption that human capital in Norway can be measured in the same manner as the World Bank’s intangible capital, i.e. as total wealth minus tangible wealth. Liu and Greaker (2009) showed that using the lifetime income approach in Norway produces a similar estimate of human capital.

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