"Sustainable" Economic Growth: The Ominous Potency of Structural Change

Ramon Lopez

No 46592, Working Papers from University of Maryland, Department of Agricultural and Resource Economics

Abstract: This paper explores the conditions for sustainable development through two models of economic growth that elucidates two extremes; an open economy with constant prices, and a closed economy with endogenous prices. Sustainable development is easier to achieve in the case of the former than the latter. A closed economy requires a high degree of flexibility of its consumers, with an elasticity of substitution of clean goods substantially above 1 in order to achieve sustainable development. Three mechanisms have to work in tandem: the technique, composition, and growth-limit effects. In contrast, the open economy requires no flexibility on the part of its consumers and may achieve sustainable development through only one mechanism – the composition effect. For the open economy case, the composition effect can completely suppress the technique effect, resulting in both mechanisms acting like substitutes. On the other hand, for the closed economy case, both effects are highly complementary. The historical experience of the North indicates more similarities with the open economy paradigm.

Keywords: Environmental Economics and Policy; International Development; International Relations/Trade; Labor and Human Capital (search for similar items in EconPapers)
Pages: 45
Date: 2008
New Economics Papers: this item is included in nep-env and nep-fdg
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Journal Article: "Sustainable" Economic Growth: The Ominous Potency of Structural Change (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:umdrwp:46592

DOI: 10.22004/ag.econ.46592

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