Saturday, April 26, 2014

Natural Resources And Economic Growth Theory

This article has two powerful insights.  The first insight is that economic growth theory has a focus on sustained growth.  It looks at the factors of production and some externalities and asks how they might keep the growth rate at a desirable point.  Environmental economists add another variable to the economic growth model.  They integrate natural capital into the growth equations in order to determine the growth rate of a sustainable economy.  Natural capital is a key input into the growth model and it places limits on the production function.  A sustainable economic growth model must include natural capital in its equations.

The second insight in the article is that there has been a bifurcation within economics between environmental economics and traditional macroeconomics which largely ignores natural capital. As a result the great majority of macroeconomics courses pay little attention to natural capital.  That role is assumed by economists who specialize in environment economics.  Very few students take those courses in relation to the numbers of students who take traditional macroeconomics. Therefore, it is critical to our future that we integrate natural resources into traditional economic growth models.  We need a focus on sustainable growth rather than an exclusive focus on sustained growth.

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