Revisiting the Sustainable Economic Welfare Growth in China: Provincial Assessment Based on the ISEW

Traditional GDP calculations exclude the ecological environment and natural resource depletion, arguing that sustained economic growth can lead to sustained welfare improvements. The Index of Sustainable Economic Welfare (ISEW) is a monetary measure of sustainability and economic welfare aimed at overcoming some of the limitations of GDP. Given the significant impact of industrial development, the demographic composition, and the balance of payments in economic growth and sustainable economic well-being, we propose an improved ISEW method (SE-ISEW), where the structural index is used instead of the Atkinson index as a measure of structural imbalance. This study calculates and compares the ISEW and SE-ISEW for 30 provinces in mainland China from 1997 to 2017 and discusses highly controversial methodological assumptions related to income inequality, long-term environmental damage, and nonrenewable energy consumption. Findings show that China's GDP is larger than ISEW and SE-ISEW respectively. Moreover, the "relative threshold effect"-increases in social welfare are slower than the expansion of economic scale-has been found in many provinces. In the case of rapid economic growth, the gap between GDP and ISEW or SE-ISEW has increased over time. This study reveals an unbalanced development of China's economic growth and sustainable welfare growth and provides a new way of thinking about structural transformation.