Skip to main content
SpringerLink
Log in

Sustainability and Economic Growth

  • Chapter
Markets and the Environment

  • 19k Accesses

Abstract

Microeconomics, the subject of Chapters 2 through 10, examines how households and firms make choices and interact at the scale of individual markets. When we ask whether the owner of a natural resource will incorporate scarcity into her extraction decisions, or whether the manager of a steel mill will take account of the damages from pollution, or how a government policy will shape the incentives of firms and individuals, we are exploring questions of microeconomics. Macroeconomics takes a more top-down view, focusing on economy-wide phenomena—the sum of millions of micro-level actions by households and firms. In this chapter, we address the intersection of economic growth—a macroeconomic phenomenon—and the natural environment.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution

Institutional subscriptions

Reference

  1. See Joseph Stiglitz, “The Ethical Economist,” a review of The Moral Consequences of Economic Growth, by Benjamin M. Friedman, Foreign Affairs (November/December): 128–134 (2005).

    Google Scholar 

  2. See Donella H. Meadows, D. L. Meadows, J. Randers, and W. W. Behrens, The Limits to Growth (New York: Universe Books, 1972); Donella H. Meadows et al., Beyond the Limits (Post Mills, VT: Chelsea Green Publishing Company, 1992).

    Google Scholar 

  3. See Julian Simon, The Ultimate Resource (Princeton, NJ: Princeton University Press, 1981); Julian Simon, The Ultimate Resource II (Princeton, NJ: Princeton University Press, 1996).

    Google Scholar 

  4. See William D. Nordhaus, “Lethal Model 2: The Limits to Growth Revisited,” Brookings Papers on Economic Activity (2): 1–59 (1992).

    Google Scholar 

  5. Economist Simon Kuznets established such a hill-shaped relationship between economic growth and income inequality (initially increasing, then decreasing) in the 1950s, which explains the origin of the name of this hypothesis.

    Google Scholar 

  6. For a summary of these issues, see Richard T. Carson, “The Environmental Kuznets Curve: Seeking Empirical Regularity and Theoretical Structure,” Review of Environmental Economics and Policy 4(1): 3–23 (2010). For evidence of pollution reductions in high-income countries, see John List and Mitch Kunce, “Environmental Protection and Economic Growth: What Do the Residuals Tell Us?” Land Economics 76(2): 267–282 (2000); and Michael Greenstone, “Did the Clean Air Act Cause the Remarkable Decline in Sulfur Dioxide Concentrations?” Journal of Environmental Economics and Management 47(3): 585–611 (2004).

    Google Scholar 

  7. See, for example, World Bank, World Development Report 1992 (New York: Oxford University Press, 1992); Gene M. Grossman and Alan B. Krueger, “Economic Growth and the Environment,” Quarterly Journal of Economics 110(2): 353–377 (1995).

    Google Scholar 

  8. See William T. Harbaugh, Arik Levinson, and David Molloy Wilson, “Reexamining the Empirical Evidence for an Environmental Kuznets Curve,” Review of Economics and Statistics 84(3): 541–551 (2002); and Cynthia C.-Y. Lin and Zachary D. Liscow, “Endogeneity in the Environmental Kuznets Curve: An Instrumental Variables Approach,” American Journal of Agricultural Economics 95(2): 268–274 (2013).

    Google Scholar 

  9. See Charles D. Kolstad, “Interpreting Estimated Environmental Kuznets Curves for Greenhouse Gases,” Journal of Environment and Development 15(1): 42–49 (2006).

    Article  Google Scholar 

  10. See Joseph E. Aldy, “An Environmental Kuznets Curve Analysis of U.S. State-Level Carbon Dioxide Emissions,” Journal of Environment and Development 14(1): 48–72 (2005).

    Google Scholar 

  11. See Nordhaus, “Lethal Model 2”; and Jeffrey A. Krautkraemer, “Economics of Scarcity: The State of the Debate,” in David Simpson, Michael A. Toman, and Robert U. Ayres, eds., Scarcity and Growth Revisited: Natural Resources and the Environment in the New Millennium (Washington, DC: RFF Press, 2005), 54–77.

    Google Scholar 

  12. For a summary of these trends, see Nordhaus, “Lethal Model 2.”

    Google Scholar 

  13. It is also possible that declining ore quality is contributing to some price decreases.

    Google Scholar 

  14. See Martin L. Weitzman, “Pricing the Limits to Growth from Minerals Depletion,” Quarterly Journal of Economics 114(2): 691–706 (1999).

    Article  Google Scholar 

  15. See World Commission on Environment and Development, Our Common Future, Report of the United Nations World Commission on Environment and Development (Oxford: Oxford University Press, 1987).

    Google Scholar 

  16. Robert M. Solow, “Sustainability: An Economist’s Perspective,” J. Seward Johnson Lecture to the Marine Policy Center, June 14, Woods Hole Oceanographic Institution, Woods Hole, Massachusetts. Reprinted in Robert N. Stavins, ed., Economics of the Environment: Selected Readings, 6th ed. (New York: W.W. Norton and Company, 2012), 543–550.

    Google Scholar 

  17. This idea is due to Robert N. Stavins, A. F. Wagner, and G. Wagner, “Interpreting Sustainability in Economic Terms: Dynamic Efficiency plus Intergenerational Equity,” Economic Letters 79: 339–343 (2003).

    Google Scholar 

  18. Thomas C. Schelling, “The Cost of Combating Global Warming,” Foreign Affairs 76(6): 8–4 (1997).

    Article  Google Scholar 

  19. Capital depreciation is simply the loss in value of an economy’s capital equipment due to use and the passage of time. For example, this year’s U.S. GDP would include the total value of tractors produced by labor and property in the United States this year, net of the decrease in value of all tractors produced by labor and property in the United States in this and previous years.

    Google Scholar 

  20. See Arthur C. Pigou, The Economics of Welfare (London: Macmillan and Co., 1932), part 1, Chapter 3, available at www.econlib.org/library/NPDBooks/Pigou/pg EW3.html.

  21. Graham Davis, Interview for “Measuring Our Worth,” Living on Earth, National Public Radio (April 9, 2004).

    Google Scholar 

  22. See William Nordhaus and James Tobin, “Is Growth Obsolete,” Cowles Foundation Working Paper 398, New Haven, CT: Yale University, reprinted from Milton Moss, ed., The Measurement of Economic and Social Performance: Studies in Income and Wealth, Vol. 38 (Cambridge, MA: National Bureau of Economic Research, 1973).

    Google Scholar 

  23. See Robert Repetto, William Magrath, Michael Wells, Christine Beer, and Fabri-zio Rossini, Wasting Assets: Natural Resources in the National Income Accounts (Washington, DC: World Resources Institute, 1989).

    Google Scholar 

  24. See William D. Nordhaus and Edward C. Kokkelenberg, eds., Nature’s Numbers: Expanding the National Economic Accounts to Include the Environment (Washington, DC: National Academy Press, 1999).

    Google Scholar 

  25. Nicholas Z. Muller, Robert Mendelsohn, and William Nordhaus, “Environmental Accounting for Pollution in the United States Economy,” American Economic Review 101(5): 1649–1675.

    Google Scholar 

  26. See Martin L. Weitzman and Karl-Gustaf Löfgren, “On the Welfare Significance of Green Accounting as Taught by Parable,” Journal of Environmental Economics and Management 32: 139–153 (1992).

    Google Scholar 

  27. This phrase is due to Robert Solow, “An Almost Practical Step toward Sustainability,” Lecture on the occasion of the 40th anniversary, Resources for the Future, Washington, DC (1992).

    Google Scholar 

  28. The following is summarized from Kenneth Arrow, Partha Dasgupta, Lawrence Goulder, Gretchen Daily, Paul Erlich, Geoffrey Heal, Simon Levin, Karl-Göran Mäler, Stephen Schneider, David Starrett, and Brian Walker, “Are We Consuming Too Much?” Journal of Economic Perspectives 18(3): 147–172, especially table 2 and pp. 163–166.

    Google Scholar 

  29. See A. B. Jaffe, S. R. Peterson, P. R. Portney, and R. N. Stavins, “Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?” Journal of Economic Literature 33: 132–63 (March 1995); and Arik Levinson, “Environmental Regulations and Industry Location: International and Domestic Evidence,” in J. N. Bhagwati and R. E. Hudec, eds., Fair Trade and Harmonization: Prerequisites for Free Trade? Vol. 1 (Cambridge, MA: MIT Press, 1996), 429–457.

    Google Scholar 

  30. See Smita B. Brunnermeier and Arik Levinson, “Examining the Evidence on Environmental Regulations and Industry Location,” Journal of Environment and Development 13(1): 6–41 (2004).

    Article  Google Scholar 

  31. See Josh Ederington, Arik Levinson, and Jenny Minier, “Footloose and Pollution-Free,” Review of Economics and Statistics 87(1): 92–99 (2005).

    Google Scholar 

  32. See Arik Levinson, “Environmental Regulatory Competition: A Status Report and Some New Evidence,” National Tax Journal 56(1): 91–106 (2003).

    Google Scholar 

  33. Carolyn Fisher, “Does Trade Help or Hinder the Conservation of Natural Resources?” Review of Environmental Economics and Policy 4(1): 103–121 (2010).

    Article  Google Scholar 

  34. M. Scott Taylor, “Buffalo Hunt: International Trade and the Virtual Extinction of the North American Bison,” American Economic Review 101(7): 1–36 (2011).

    Google Scholar 

  35. For a succinct description of this point of view, see the first issue of the journal Ecological Economics, published in February 1989.

    Google Scholar 

Further Reading

  • Arrow, Kenneth, Partha Dasgupta, Lawrence Goulder, Gretchen Daily, Paul Erlich, Geoffrey Heal, Simon Levin, Karl-Göran Mäler, Stephen Schneider, David Starrett, and Brian Walker. 2004. “Are We Consuming Too Much?” Journal of Economic Perspectives 18(3): 147–172.

    Article  Google Scholar 

  • Brunnermeier, Smita B., and Arik Levinson. 2004. “Examining the Evidence on Environmental Regulations and Industry Location,” Journal of Environment and Development 13(1): 6–41.

    Article  Google Scholar 

  • Carson, Richard T. 2010. “The Environmental Kuznets Curve: Seeking Empirical Regularity and Theoretical Structure,” Review of Environmental Economics and Policy 4(1): 3–23.

    Article  Google Scholar 

  • Ederington, Josh, Arik Levinson, and Jenny Minier. 2005. “Footloose and Pollution-Free,” Review of Economics and Statistics 87(1): 92–99.

    Article  Google Scholar 

  • Fischer, Carolyn. 2010. “Does Trade Help or Hinder the Conservation of Natural Resources?” Review of Environmental Economics and Policy 4(1): 103–121.

    Article  Google Scholar 

  • Frankel, Jeffrey A., and Andrew K. Rose. 2005. “Is Trade Good or Bad for the Environment? Sorting Out the Causality,” Review of Economics and Statistics 87(1): 95–91.

    Google Scholar 

  • Friedman, Benjamin M. 2005. The Moral Consequences of Economic Growth, Knopf, New York.

    Google Scholar 

  • Jaffe, A. B., S. R. Peterson, P. R. Portney, and R. N. Stavins. 1995. “Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?” Journal of Economic Literature 33(March): 132–163.

    Google Scholar 

  • Krautkraemer, Jeffrey A. 2005. “Economics of Scarcity: The State of the Debate,” in David Simpson, Michael A. Toman, and Robert U. Ayres, eds., Scarcity and Growth Revisited: Natural Resources and the Environment in the New Millennium, RFF Press, Washington, DC, 54–77.

    Google Scholar 

  • Nordhaus, William D. 1992. “Lethal Model 2: The Limits to Growth Revisited,” Brookings Papers on Economic Activity 1992(2): 1–59.

    Article  Google Scholar 

  • Nordhaus, William D., and Edward C. Kokkelenberg, eds. 1999. Nature’s Numbers: Expanding the National Economic Accounts to Include the Environment, National Academy Press, Washington, DC.

    Google Scholar 

  • Solow, Robert M. 1991. “Sustainability: An Economist’s Perspective,” J. Seward Johnson Lecture to the Marine Policy Center, June 14, Woods Hole Oceanographic Institution, Woods Hole, MA. Reprinted in Robert N. Stavins, ed., Economics of the Environment: Selected Readings, 6th ed., W.W. Norton and Company, New York, 543–550.

    Google Scholar 

  • Solow, Robert. 1992. “An Almost Practical Step toward Sustainability,” Lecture on the occasion of the 40th anniversary, Resources for the Future, Washington, DC.

    Google Scholar 

  • Stiglitz, Joseph. 2005. “The Ethical Economist,” a review of The Moral Consequences of Economic Growth, by Benjamin M. Friedman, Foreign Affairs (November/December): 128–134.

    Google Scholar 

  • Weitzman, Martin L. 1999. “Pricing the Limits to Growth from Minerals Depletion,” Quarterly Journal of Economics 114(2): 691–706.

    Article  Google Scholar 

Download references

Authors
  1. Nathaniel O. Keohane
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Sheila M. Olmstead
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

Copyright information

© 2016 Nathaniel O. Keohane and Sheila M. Olmstead

About this chapter

Cite this chapter

Keohane, N.O., Olmstead, S.M. (2016). Sustainability and Economic Growth. In: Markets and the Environment. Island Press, Washington, DC. https://doi.org/10.5822/978-1-61091-608-0_11

Download citation

Publish with us

Policies and ethics

Search

Navigation