Growth Theory and “Green Growthâ€

The relatively new and still amorphous concept of “Green Growth†can be understood as a call for balancing longer-term investments in sustaining environmental wealth with nearer-term income growth to reduce poverty. We draw on a large body of economic theory available for providing insights on such balancing of income growth and environmental sustainability. We show that there is no a priori assurance of substantial positive spillovers from environmental policies to income growth, or for a monotonic transition to a “green steady state†along an optimal path. The greenness of an optimal growth path can depend heavily on initial conditions, with a variety of different adjustments occurring concurrently along an optimal path. Factor-augmenting technical change targeting at offsetting resource depletion is critical to sustaining long-term growth within natural limits on the availability of natural resources and environmental services.