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Wealth and sustainability

Hamilton, K. and Hartwick, J. (2014) Wealth and sustainability. Oxford Review of Economic Policy, 30 (1). pp. 170-187. ISSN 0266-903X

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Identification Number: 10.1093/oxrep/gru006

Abstract

For economists in 1974, it was a live question whether the exhaustion of natural resources, such as oil, would necessarily lead to the decline of economic activity. Solow showed that constant levels of consumption could be sustained in the face of exhaustibility if there is sufficient substitutability between produced and natural factors of production. Hartwick then proved that underpinning this result is a saving rule-set investment in produced capital equal to the value of resource depletion at each point in time. A large literature has shown that a comprehensive measure of the change in real wealth-net saving-plays a central role in determining whether current well-being can be sustained. In particular, current declines in real wealth signal that future well-being will also decline, a result that has been confirmed empirically using data for developing countries. Changes in wealth and sustainability are therefore joined at the hip. The current composition of wealth serves to define the policy challenges that countries face in achieving sustainable development. If substitution possibilities are limited between natural and other factors of production, as one might expect, then technical progress is a necessary complement to policies for sustainability.

Item Type: Article
Official URL: http://oxrep.oxfordjournals.org/content/30/1/170
Additional Information: © The Authors 2014. Published by Oxford University Press.
Divisions: LSE
Subjects: H Social Sciences > HC Economic History and Conditions
JEL classification: Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q18 - Agricultural Policy; Food Policy
Date Deposited: 23 Jun 2014 15:49
Last Modified: 20 Feb 2019 10:54
URI: http://eprints.lse.ac.uk/id/eprint/57134

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