Chapter 7- Sustainable Economic Development

Can Economic Growth Be Sustainable?

 Economic Growth Benefits: While it may not guarantee happiness, economic

growth generally leads to a better quality of life through improvements in living
standards.
 The Debate: There's an ongoing debate about whether continuous GDP growth is
compatible with sustainable development.

Two Conflicting Viewpoints:

1. Environmental Concern:
o Human activity has significantly strained Earth's ecosystems.
o Examples include overuse of freshwater, ocean depletion, atmospheric
pollution, and overfishing.
o Industrial output, energy use, and emissions have surged dramatically in the
past century.
o Humans now use around 40% of Earth’s net energy from photosynthesis,
indicating a massive ecological footprint.
2. Economic Optimism:
o Advocates argue that investments in technology, education, and capital can
ensure higher future living standards.
o Resource scarcity can be managed through innovation and trade (e.g.,
globalization).
o Historical data show relatively stable natural resource prices, reducing fears of
depletion.
o Economic growth has improved health, hygiene, and living conditions.

Underlying Issues:

 Environmentalists emphasize ecological limits.

 Economists tend to believe in growth and technology’s potential to overcome
environmental challenges.
 National economic statistics often ignore natural capital, leading to its
underrepresentation in policy and economic theory.

Natural Capital- Classification

1. Natural capital includes resources used directly (like fisheries), indirectly (like oil
and gas), or both (like air and water).
2. A resource’s value can come from:
o Its usefulness (e.g., food sources or ecosystem roles)
o Aesthetic appeal (e.g., scenic places)
o Intrinsic worth (e.g., endangered species or sacred groves)
o Or a combination of these (e.g., biodiversity)
 3. Resources can be valued for what is extracted (e.g., timber), for their presence (e.g.,
forest cover), or both (e.g., watersheds).
4. Ecologists have emphasized that ecosystems provide essential economic services.
5. Ecosystems are now recognized as capital assets due to the vital services they offer.
6. These services include:
o Soil regeneration
o Nitrogen and carbon fixation
o Nutrient recycling
o Flood control
o Pollutant filtration
o Waste assimilation
o Crop pollination
o Hydrological cycle regulation
o Maintaining atmospheric composition
7. Some ecosystem services have a global reach (e.g., atmospheric balance), while
others are localized (e.g., micro-watersheds).
8. Pollutants are considered the reverse of resources; they degrade resources and the
environment.
9. When pollutant discharge exceeds the assimilative capacity of natural sinks, the
environment collapses.
10. The terms natural resources and environment are used interchangeably in this
context.

Two simple exercises in environmental economics:

General Idea:

1. Environmental economics can align with environmental sciences to address pressing

global issues.
2. Two key issues are explored:
o The environmental impact of free trade.
o The delayed action on climate change due to intergenerational impact.

1. Trade Expansion and the Environment:

3. Free trade generally boosts economic growth, supported by empirical evidence.

4. The poor may benefit from growth, but environmental costs are often ignored,
making the overall impact unclear.
5. Example: Timber exports from poor, forest-rich countries:
o Governments issue logging concessions to private firms for revenue.
o Deforestation causes siltation and floods downstream, affecting poor
farmers and fishermen.
6. Legal frameworks may exist for compensation, but:
o Laws are poorly enforced.
o Victims are dispersed, poor, and unaware of the cause.
o Logging firms face only private costs, not the total social/environmental
costs.
7. This leads to:
o Underpricing of timber exports.
 o Excessive deforestation.
o Hidden subsidies benefiting importing countries, at the expense of poor
locals.
8. Poor people in exporting countries are unintentionally subsidizing richer nations.
9. While this doesn’t argue against free trade, it highlights the need to consider and
mitigate environmental impacts of trade policies.

Discounting Climate Change-

The passage discusses the concept of discounting in economics, particularly in relation to

climate change and its future costs. It critically examines how economists' approach to
discounting future costs and benefits impacts the urgency of addressing global warming.

Historical Background on CO₂ Levels:

 The concentration of carbon dioxide (CO₂) in the atmosphere remained around 260
parts per million (ppm) for about 11,000 years, but since the early 18th century, it
has risen to 380 ppm.
 Ice core data from Antarctica reveals that for the past 420,000 years, the maximum
concentration of CO₂ was 300 ppm. Over this period, Earth underwent four glacial-
interglacial cycles, lasting approximately 100,000 years each, driven by changes in
the Earth's orbit and solar radiation.
 We are currently living in an interglacial period, meaning the Earth is in a relatively
warm phase, but the ongoing rise in CO₂ is pushing the climate out of the natural
range it has followed for millennia.

Potential Future CO₂ Levels and Temperature Increase:

 If current emission trends continue, by mid-century, CO₂ could reach 500 ppm,
nearly double the pre-industrial levels. By 2100, levels might rise to 750 ppm, which
is nearly three times pre-industrial levels.
 A doubling of CO₂ concentration could lead to an increase in global temperature
by 3–7°C. With a tripling of CO₂, this rise could be between 6–11°C.
 Such temperature increases would push the Earth’s climate into an unknown zone, far
beyond anything Earth has experienced in the last 420,000 years.

Impacts on Infrastructure and Ecosystems:

 The speed of these changes is critical. Infrastructure, built with an assumption of

gradual aging, would become outdated and obsolete far sooner than expected, with
some even submerged due to rising sea levels.
 These changes would force humanity to restructure its capital assets, diverting
resources from consumption to adaptation.
 The ecosystem would also undergo drastic changes, with the potential for new
diseases, ecosystem degradation, and shifts in agricultural productivity. The cost
of these impacts could be staggering.

Economic Models and Discounting:

  In 2004, a group of eight prominent economists were invited to Copenhagen to
allocate a $50 billion budget for the next five years, and they placed climate change
at the bottom of their priority list.
 The economists did this due to the practice of discounting future costs. The idea is
that actions today to prevent climate change involve significant costs, while the
benefits — avoiding future economic disruptions — would only be realized 50–100
years later.
 Discounting is based on the assumption that the future is worth less than the present,
due to the time value of money (you could invest today and earn interest). In the
U.S., long-term interest rates on government bonds have been around 3–5%
annually, meaning that future benefits appear small in today's terms.

How Discounting Affects Climate Change Economics:

 At a 4% discount rate, the value of $1 worth of benefits 100 years from now
would be worth only 2.5 cents today. This means that, according to traditional
economic models, the benefits of taking action against climate change in the future
are not worth the high upfront costs today.
 The discount rate heavily influences the perception of future benefits. With a higher
discount rate, the costs of taking action on climate change (i.e., reducing emissions)
seem greater than the benefits, making it appear like an unwise investment.

Ethical Questions on Discounting Future Generations:

 Discounting future benefits at a positive rate raises ethical concerns. Impatience is

often used to justify discounting, suggesting that we value benefits now more than in
the future. The argument here is that society’s impatience is ethically questionable
because it discriminates against future generations simply because they don’t exist
yet.
 A second justification for discounting is rising per capita consumption in the future.
If future generations are expected to be wealthier than us, it might make sense to
value their additional consumption less than our own today.
 Philosophers argue that we should not be so impatient with the future, as this
undermines policies that protect future generations.

The Case for Negative Discount Rates:

 While economists generally assume positive growth in consumption per capita, this
may not hold true if climate change impacts are severe. Rising temperatures could
lead to droughts, extreme weather, and ecosystem degradation, which would
negatively impact economic growth.
 If global consumption per capita declines due to climate change, a negative discount
rate might be more appropriate. This would mean that the value of future benefits
would actually increase when viewed from the present, encouraging more immediate
action to avoid potential harm.

Calculating the Discount Rate Based on Future Scenarios:

  The passage suggests an alternative scenario where global consumption per capita
grows 0.5% annually for the next 50 years and declines by 1% annually over the
following 100 years.
 In this scenario, the appropriate discount rate would be 1.5% for the first 50 years
(3 times the 0.5% growth rate) and -3% for the subsequent 100 years (3 times the -1%
decline rate).
 With a negative discount rate, future consumption benefits are amplified, meaning
that a dollar's worth of consumption benefits in 150 years could be worth $9 today,
reversing the traditional view that investing in climate change mitigation is too
expensive.

Public vs Private Discounting:

 Private investors often use positive discount rates because they rely on the returns
from commercial investments (such as bank interest rates).
 However, when evaluating global climate change, public decision-making should
use a different approach. The atmosphere is a public good, and the costs and
benefits of mitigating climate change affect everyone, not just individual investors.
 The wedge between private and public discount rates means that individual
investors might not consider the long-term global impacts, while the global
community must address these challenges for future generations.

Conclusion:

 The passage argues that economic models that discount future costs at positive rates
fail to capture the full scope of the risks posed by climate change. If the climate crisis
is handled with the same discounting logic, the urgent need for action today could be
overlooked.
 The models that prioritize current consumption over long-term sustainability are
flawed and may not account for the possibility of a future where climate change
leads to lower global consumption. This makes the case for more immediate and
aggressive efforts to reduce greenhouse gas emissions.

In conclusion, the passage argues for a shift in how future climate change benefits are
discounted in economic models. The traditional approach often understates the value of
taking action against climate change today and could lead to disastrous long-term
consequences if not reconsidered.

This passage delves into the concepts of economic growth, sustainable development, and the
limitations of traditional measures like GDP in assessing an economy's true productive base.
It connects the ideas of natural capital and sustainability to broader economic reasoning
and explores the challenges posed by externalities, market failures, and environmental
degradation.

Sustainable Development and Intergenerational Justice:

The Brundtland Commission Report (1987) is central to the discussion of sustainable

development. The report defines sustainable development as development that meets the
needs of the present without compromising the ability of future generations to meet
their own needs. This means that every generation should leave behind a productive base
that is at least as large as what it inherited.

 The idea of intergenerational justice comes into play, where the current generation
is responsible for ensuring that future generations have the resources and means
necessary to meet their own needs. This requirement does not demand perfection or
an ideal scenario, but simply that the future has no less access to resources and capital
than the present generation.

The question, however, is how to measure whether a generation is fulfilling this obligation. Is
the current generation leaving behind an adequate productive base, one that will support the
needs of the future? The answer to this question is not simple and requires more than just
conventional economic indicators like GDP.

Limitations of GDP in Assessing Economic Growth:

GDP (Gross Domestic Product) is a common measure of economic activity and growth.
However, the passage highlights its shortcomings in assessing an economy’s overall health or
long-term sustainability:

 GDP’s focus on “gross” means it does not account for the depreciation of capital
assets, including natural capital (e.g., ecosystems, natural resources). In other words,
GDP measures the total output of goods and services but ignores whether the
production is depleting or degrading the resources needed to maintain future
production.
 A growing GDP might indicate economic success, but it does not reveal whether the
economy’s productive base (composed of various forms of capital: physical, human,
knowledge, and natural) is shrinking. In fact, a country's productive base could be
diminishing even while GDP grows, as economic activities may be depleting non-
renewable resources or damaging ecosystems.
 GDP does not show depreciation, and so an economy might appear to be growing
even if its natural or manufactured capital is declining. For example, a country might
benefit from deforestation or the overuse of resources in the short term, increasing
GDP but reducing its long-term capacity to support future growth.

The Misleading Nature of GDP and HDI:

This disconnect between economic growth and sustainable development is made clearer
when looking at indicators like GDP per capita and the Human Development Index (HDI).

 GDP per capita can increase even while the productive base is shrinking. If a
country’s natural resources are being depleted, or if its ecosystems are collapsing, it
can still experience short-term economic growth and rising income levels. However,
these gains are likely unsustainable, and once the resources are exhausted, the
economy will face severe problems.
 HDI, which includes factors like health and education, could also rise even if the
productive base shrinks. This is because HDI does not account for the degradation of
natural resources or the depreciation of capital. An economy could improve in some
social areas (like life expectancy or literacy) while its economic base weakens,
leading to an unsustainable future.
Thus, both GDP and HDI can mislead policymakers and the public about the true state of an
economy’s productive capacity, as they fail to include the environmental and natural capital
factors that are essential for long-term sustainability.

Market Prices and Resource Scarcity:

The passage argues that market prices should ideally reflect the scarcity of resources, but
they often fail to do so because many natural resources have no well-functioning markets.

 Missing Markets: For many natural resources (like clean air, water, or biodiversity),
markets do not exist. This makes it difficult to accurately assess their value and the
risks associated with their overuse.
o In some cases, the economic interactions that would determine the price of
these resources happen over large geographical distances (such as the impact
of deforestation in one region on agriculture or fishing in another).
o In other cases, temporal distances prevent markets from emerging. For
example, the long-term effects of carbon emissions on climate change are not
reflected in the current market price, as future generations cannot negotiate
with the present generation.
 Externalities: Many environmental issues involve externalities, which are side
effects of economic activities that are not reflected in market prices. For instance,
pollution is a negative externality; the social cost of pollution (e.g., health problems,
ecosystem damage) is often much higher than the private cost borne by the polluter.
As a result, markets underprice the use of natural resources, leading to their
overexploitation.

Because of these market failures, it is possible for an economy to experience growth in GDP
and HDI even while its productive base is deteriorating. If environmental resources are
underpriced, the economy may continue to grow for a while, but this growth is unsustainable
and will eventually lead to problems when the resources are depleted.

The Environment: Luxury or Necessity?

There is a common belief that economic growth is good for the environment, because once a
country reaches a certain level of wealth, it can afford to invest in environmental protection
and sustainability. This idea views the environment as a luxury good that countries can only
focus on once they have overcome poverty.

However, the passage argues that in many cases, especially for the rural poor, the
environment is a necessity, not a luxury. For example:

 In rural areas, ecosystems like wetlands, forests, and fisheries are essential for
livelihoods. When these ecosystems are damaged (through activities like
deforestation, agriculture, or urbanization), it is often the poor who suffer most.
They may have few or no alternatives for income or food.
 In contrast, wealthier people (like eco-tourists or importers of raw materials) can
afford to substitute damaged resources with alternatives. For the poor, however,
degradation of natural resources means no alternatives for survival.
The passage also emphasizes that ecosystem degradation is often irreversible or takes a
long time to recover. Unlike depreciation of man-made capital, which can be repaired or
replaced, the damage to ecosystems can be permanent, with irreversible consequences.
Additionally, ecosystems can collapse abruptly, without much warning, causing sudden and
severe socioeconomic damage.

Conclusion:

The passage concludes by stressing that the environment should not be viewed as a luxury
but as an essential factor of production for all societies, particularly for the poor. Economic
growth measures like GDP and HDI are insufficient for assessing long-term sustainability
because they ignore the degradation of natural capital. Sustainable development requires
more than just increasing output or improving human development indicators—it necessitates
protecting and enhancing the natural environment, which is crucial for the productive base of
the economy.

By focusing on natural capital, future generations will be able to meet their needs and avoid
the risks of ecological collapse. Therefore, policymakers need to look beyond traditional
economic indicators and account for the depreciation of natural resources and the potential
collapse of ecosystems in their decisions.

Detailed Explanation of Sustainable Economic Development

Sustainable development is defined as development that meets the needs of the present
without compromising the ability of future generations to meet their own needs. In the
context of economic development, this implies that a society’s productive base should not
shrink relative to its population over time.

The productive base of an economy includes its stock of capital assets and institutions.
These capital assets consist of manufactured capital (buildings, machinery), human capital
(skills, education), and natural capital (forests, water bodies, soil, etc.). The key idea is that
if an economy’s productive base is to remain sustainable, it must either grow or at least
remain constant over time.

1. Limitations of GDP and HDI

 GDP (Gross Domestic Product) and HDI (Human Development Index) are often
used to measure economic growth and development. However, they do not account
for the depreciation or depletion of capital assets, particularly natural capital. This
means that even if GDP or HDI is growing, the productive base of an economy could
be shrinking if the natural resources are depleting without being replaced or
compensated for by other assets.
 The GDP only measures the total monetary value of goods and services produced
within a country, but it doesn’t subtract the value of depreciated or lost capital assets.
Hence, it can give a false impression of growth when the true productive base is
shrinking due to environmental degradation or depletion of natural resources.
 The HDI is a composite measure that includes life expectancy, education, and
income. While it captures some aspects of human development, it also fails to account
for environmental or social sustainability, which could mask underlying issues of
resource depletion and ecological damage.
2. Inclusive Wealth and Social Productivity

To evaluate sustainable development, the key is to consider inclusive wealth, which takes
into account not just manufactured and human capital, but also natural capital. The concept
of social productivity is central to this approach:

 Social Productivity: The social productivity of an asset is the net increase in social
well-being that would result from adding an additional unit of that asset to the
economy, holding all other factors constant. Social well-being encompasses the well-
being of both current and future generations, and may also include intrinsic values
(e.g., the value of a healthy ecosystem for its own sake, not just its utility to humans).
 Shadow Prices: The value of an asset is reflected in its shadow price, which
represents its social scarcity. Shadow prices differ from market prices because they
reflect the true value to society, considering externalities and long-term sustainability.
For instance, while the market price of a forest may not fully reflect its environmental
importance, the shadow price would take into account its role in preventing soil
erosion, maintaining biodiversity, and absorbing carbon emissions.

3. Estimating the Social Productivity of Capital Assets

Measuring the social productivity of capital assets requires an understanding of both their
quantitative and qualitative contributions to the economy:

 Quantitative: This involves measuring the quantity of capital assets, such as how
many roads or how much forest cover a country has. This is important, but it’s not
enough to just count assets. We must understand how the loss of one asset could be
compensated by the gain of another.
 Qualitative: The qualitative aspect involves understanding the social productivity of
an asset—how valuable it is to society and what it contributes to overall well-being.
For example, while trees provide valuable ecosystem services such as preventing
erosion, they also contribute to social welfare by supporting livelihoods in rural areas.

To estimate these contributions, economists would estimate the impact of an additional unit
of an asset (such as a forest or a piece of machinery) on social well-being. This requires both
descriptive (what is the current state of the asset) and evaluative (how would an additional
unit improve well-being) efforts.

4. Inclusive Wealth

The total value of an economy’s productive base, including all capital assets (manufactured,
human, and natural), is referred to as inclusive wealth. The inclusion of natural capital
ensures that this measure of wealth accounts for the sustainability of natural resources, which
is often ignored in traditional economic measures like GDP. Inclusive wealth is a more
comprehensive measure of an economy's long-term sustainability.

 Inclusive wealth is calculated by adding up the values of all capital assets using their
shadow prices, not market prices. This gives a more accurate reflection of the
economy’s true wealth, as it accounts for the sustainability of natural resources and
the negative externalities of production and consumption.
5. Methodology for Measuring Sustainable Development

To assess whether a country’s economic development has been sustainable, economists

propose the following methodology:

1. Inclusive Investment: First, estimate the value of changes in the quantities and
compositions of manufactured capital, human capital, and natural capital. If there is
positive inclusive investment, this means that the country has added more capital than
it has lost, signaling growth in its productive base.
2. Total Factor Productivity (TFP): This step involves estimating changes in
knowledge, institutions, and technology over time, which are reflected in changes in
total factor productivity (TFP). TFP measures the efficiency with which capital and
labor are used in production.
3. Combining Estimates: The estimates of inclusive investment and TFP changes are
then combined to determine the effects on the productive base.
4. Correcting for Demographics: To account for changes in population size, the final
figure is adjusted for demographic changes. This gives an estimate of the change in
the productive base relative to population.

6. Forecasting and Sustainability

This procedure can also be applied to forecasts for the future. By estimating changes in
capital stocks, total factor productivity, and demographic factors, we can predict whether the
current economic path is likely to lead to sustainable development. The methodology
emphasizes the importance of inclusive wealth and social productivity in making informed
decisions about long-term economic policies.

Conclusion:

Sustainable economic development is not just about increasing GDP or HDI; it requires
measuring changes in an economy’s productive base, which includes manufactured, human,
and natural capital. Inclusive wealth and social productivity are key to understanding
whether development is truly sustainable. Estimating these factors involves using shadow
prices to value capital assets accurately, and adjusting for changes in population and
technological progress. This comprehensive approach provides a more accurate picture of an
economy’s long-term sustainability and helps guide policies towards truly sustainable
development.

Detailed Analysis: Has Economic Development in Recent Decades Been Sustainable?

Economists at the World Bank have estimated inclusive investment in different countries
over recent decades. Inclusive investment is a metric that combines investments in human
capital (such as education), manufactured capital (like infrastructure and machinery), and
natural capital (such as forests, oil, minerals, and the atmosphere), while accounting for
disinvestments in these resources.

Methodology

The World Bank approach to estimating inclusive investment involves several steps:
 1. Manufactured Capital Investment: Net national savings were used as a proxy for
this, which reflects the country’s savings after accounting for depreciation and
consumption.
2. Human Capital Investment: Expenditure on education was used as a proxy for this.
3. Natural Capital Disinvestment: The disinvestment in natural capital was quantified
by the depletion of resources like commercial forests, oil, minerals, and the
degradation of the atmosphere (particularly in terms of carbon dioxide emissions).
Each of these resources was valued at market prices minus extraction costs, or the
shadow price of carbon emissions was set at $20 per tonne (though this is likely an
underestimate).

However, this approach has significant limitations:

 Incomplete Resource List: It does not account for water resources, fisheries, air and
water pollution, soil degradation, and ecosystem services.
 Inadequate Human Capital Metrics: Health was not considered in the estimation of
human capital, which is a major omission.
 Shadow Price Estimates: The shadow prices, particularly for carbon emissions and
other environmental factors, are very rough and are likely to be much lower than the
actual social costs of these damages.

Despite these limitations, the approach provides a first-pass estimate at measuring

sustainable development, particularly when examining how well countries manage their
capital across economic, social, and environmental domains.

Key Findings: Economic Sustainability Across Countries (1970–2000)

The analysis uses the World Bank's inclusive investment data alongside additional
estimates of total factor productivity and population growth to assess whether economic
development in certain countries has been sustainable. The countries studied were:

 Poor countries: Sub-Saharan Africa, Bangladesh, India, Nepal, Pakistan

 Middle-income country: China
 Rich countries: UK and US

The period under study is 1970–2000. The analysis measured:

 Inclusive Investment: As a proportion of GDP (step 1)

 Population Growth: Annual growth rates
 Total Factor Productivity (TFP): Annual rate of change in a combined index of
knowledge and institutions (step 2)
 Productive Base per Capita: Growth or decline in the productive base on a per
capita basis (steps 3–5)

The results for each country/region are summarized in terms of whether the productive base
per capita increased or decreased, as well as how this relates to GDP per capita growth and
the Human Development Index (HDI).

Sub-Saharan Africa (1970–2000)

  Inclusive Investment: Negative (-2.1% of GDP per year), indicating that Sub-
Saharan Africa was disinvesting in human, manufactured, and natural capital.
 Population Growth: High, at 2.7% annually.
 Total Factor Productivity Growth: Barely any, at 0.1% annually.
 Impact on Productive Base per Capita: Declined by 2.9% annually. This shows
that, despite GDP per capita remaining stable, Sub-Saharan Africa became poorer in
terms of its productive capacity.
 HDI: Showed improvement, but HDI improvements do not account for sustainability
and could mask the reality of declining living conditions and resource depletion.

The region's economic development was clearly unsustainable, as the disinvestment in

capital and environmental degradation outweighed any gains from population growth or GDP
growth.

Indian Subcontinent (Bangladesh, India, Nepal, and Pakistan)

 Inclusive Investment: Positive in all these countries, suggesting some level of capital
accumulation.
 Population Growth: Very high in all these countries, between 1.1% (Nepal) and
2.7% (Pakistan).
 Total Factor Productivity Growth: Positive but low across the region, ranging from
0.1% (Bangladesh) to 0.6% (Nepal).
 Impact on Productive Base per Capita: Growth rates were minimal, with only
slight increases. Bangladesh (0.1%), India (0.4%), and Nepal (0.6%) showed barely
positive or marginal growth in their productive base per capita.
 HDI: Improved in each country, but as noted, HDI is not a comprehensive measure of
sustainable development.

Although the productive base did expand in the region, it was barely enough to offset the
effects of high population growth, making the development barely sustainable. Furthermore,
critical environmental issues like soil erosion and pollution were not accounted for, which
would likely reduce the sustainability further if included.

China (1970–2000)

 Inclusive Investment: 22.7% of GDP annually, a very large figure compared to other
countries in the study.
 Total Factor Productivity Growth: Very high, at 3.6% annually.
 Population Growth: Relatively low, at 1.4% annually.
 Impact on Productive Base per Capita: Increased significantly at 7.8% annually.
 GDP per Capita Growth: Also high, at 7.8% annually, reflecting China's rapid
economic expansion.
 HDI: Improved, in line with other measures of growth.

China’s economic development was sustainable during this period, with a substantial
increase in its productive base per capita. Both GDP per capita and HDI increased in tandem,
reflecting strong, sustainable growth.

United States and United Kingdom (1970–2000)

  Inclusive Investment: Modest, at 8.8% of GDP (US) and 8.9% of GDP (UK).
 Total Factor Productivity Growth: Low, at 0.2% annually (US) and slightly higher
for the UK.
 Population Growth: Low, at 1.1% annually for the US.
 Impact on Productive Base per Capita: Increased, but at a slower pace than in
China.
 GDP per Capita Growth: Positive for both countries, but lower than in China.
 HDI: Improved for both countries.

Both the US and UK had modest yet sustainable economic development, with moderate
inclusive investment and low population growth. The figures show growth in productive base
per capita, but these countries are already mature economies, which makes high rates of
growth more difficult to achieve.

Impact of Shadow Prices and Updated Estimates

One important insight from the study is that the shadow price of carbon and other natural
resources is likely too low. If the price of carbon were adjusted to a more accurate figure
(say, $75 per tonne instead of $20 per tonne), all the poor countries in the study would show
a decline in their productive base per capita. This indicates that natural capital degradation
is more severe than initially estimated, especially in poorer countries.

Conclusion

The analysis underscores the sobering reality of unsustainable economic development in

regions like sub-Saharan Africa and the Indian subcontinent during the period of 1970–
2000. Although GDP and HDI may have improved, these gains often masked the underlying
decline in the productive base due to environmental degradation and inefficient use of
resources.

The study also stresses that better institutions—such as those improving resource
management and governance—are crucial. With better institutions, countries could
potentially achieve both higher consumption and more sustainable investment in their
productive base. The findings suggest that the path to sustainable development requires
balancing economic growth with environmental protection and improved institutional
frameworks.