Table Of ContentEconomic Growth and
Sustainable Development
Economic growth, reflected in increases in national output per capita, makes possible an improved
material standard of living. Sustainable development, popularly and concisely defined as "meeting
the needs of the present generations without compromising the abil ity of future generations to meet
their needs/' directly addresses the utilization of natural resources, the state of the environment,
and intergenerational equity.
Fundamental questions addressed in this textbook include:
• What causes economic growth?
• Why do some countries grow faster than others?
• What accounts for the extraordinary growth in the world's population over the past two
centuries?
• What are the current trends in population and will these trends continue?
• Are there limits to economic growth and population growth due to resource constraints and
environmental thresholds?
• Is sustainable development compatible with economic growth?
• Can sustainable development be attained without addressing the extreme poverty that afflicts
over a billion of the world's population?
This interdisciplinary textbook uses a blend of formal models, empirical evidence, history and
statistics to provide a coherent and comprehensive treatment of economic growth and sustainable
development.
Peter N. Hess is Gail M. and Ernest G. Doe Professor of Economics at Davidson College, North
Carolina, USA. He is the co-author of undergraduate texts on economic principles and economic
development and the author of an undergraduate text on mathematical economics. In addition to
this, he has published journal articles on the fertility transition, military spending in developing
economies, and sustainable development. He also serves as president of Nepal Orphans Home, an
international nonprofit with operations in Nepal.
ROUTLEDGE TEXTBOOKS IN ENVIRONMENTAL AND
AGRICULTURAL ECONOMICS
1. The Economics of Agricultural Development, second edition
George W. Norton, Jeffrey Alwang and William A. Masters
2. Agricultural Marketing
James Vercammen
3. Forestry Economics
John E. Wagner
4. Agribusiness Management, fourth edition
Jay Akridge, Freddie Barnard, Frank Dooley and John Foltz
5. Sustainability Economics
Peter Bartelmus
6. Food Economics
Henning Otto Hansen
7. Economic Growth and Sustainable Development
Peter N. Hess
Economic Growth
and Sustainable
Development
Peter N. Hess
i~ ~~~~~;n~~~up
LONDON AND NEW YORK
First published 2013
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
711 Third Avenue, New York, NY 10017
if
Routledge is an imprint the Taylor &Francis Group, an iriforma business
@ 2013 Peter N. Hess
The right of Peter N. Hess to be identified as author of this work has
been asserted by him in accordance with the Copyright, Designs and
Patent Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced
or utilised in any form or by any electronic, mechanical, or other means,
now known or hereafter invented, including photocopying and recording,
or in any information storage or retrieval system, without permission in
writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and
explanation without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
if
Library Congress Cataloging in Publication Data
Hess, Peter N.
Economic growth and sustainable development/by Peter N. Hess.
p. cm.
Includes bibliographical references and index.
1. Economic development. 2. Sustainable development. 1. Title.
HD75.H45832013
338.9-dc23 2012030672
ISBN: 978-0-415-67948-0 (hbk)
ISBN: 978-0-415-67949-7 (pbk)
ISBN: 978-0-203-07051-2 (ebk)
Typeset in Perpetua
by Sunrise Setting Ltd, Paignton, UK
Dedication
To my wife, Boo, our grandchildren,
my brother, Michael, and the children of Nepal Orphans Home
I dedicate this book.
Peter Hess
v.
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Contents
List of illustrations xii
Preface xvi
Acknowledgments xxii
PART I
INTRODUCTION 1
1 INTRODUCTION TO ECONOMIC GROWTH 3
BRIEF HISTORY OF ECONOMIC GROWTH 4
MEASURING ECONOMIC GROWTH 6
ECONOMIC GROWTH AND POVERTY 6
PRIMARY SOURCES OF OUTPUT GROWTH 13
OUTPUT GROWTH ACCOUNTING 15
LABOR PRODUCTIVITIES AND PER CAPITA INCOMES 23
NEGATIVE OUPUT GROWTH 29
CONCLUSION 32
2 INTRODUCTION TO POPULATION GROWTH 35
COMPONENTS OF POPULATION CHANGE 35
MEASURING POPULATION GROWTH RATES 36
BRIEF OVERVIEW OF WORLD POPULATION GROWTH 38
DEMOGRAPHIC TRANSITION THEORY 43
LOW POPULATION GROWTH 51
POPULATION CHANGE AND ECONOMIC GROWTH 52
CONCLUSION 53
PART II
THEORIES OF GROWTH 55
3 CLASSICAL THEORIES OF ECONOMIC GROWTH 57
MERCANTILISM 57
CLASSICAL ECONOMISTS AND ECONOMIC GROWTH 58
vii .
CONTENTS
ADAM SMITH 58
UTOPIAN SCHOOL 65
THOMAS MALTH US 66
DAVID RICARDO 69
SAY'S LAW 73
JOHN STUART MILL 73
CONCLUSION 74
4 MACROECONOMICS AND THE GREAT DEPRESSION 77
THE GOLD STANDARD ERA 78
POST-WORLD WAR I RECOVERIES 80
THE GREAT DEPRESSION 82
MACROECONOMIC CONCERNS 84
CAPITAL INTENSITY 88
CONCLUSION 96
5 LIMITS TO GROWTH 99
INTERNATIONAL INSTITUTIONS FOR TH E NEW WORLD ORDER 100
INTERNATIONAL FINANCE, TRADE, AND AID 101
STAGFLATION IN THE 1970S 102
ECONOMIC MODELS 103
THE LIMITS TO GROWTH SIMULATION MODEL 103
A STEADY-STATE ECONOMY 108
NO LIMITS TO GROWTH 110
MARI(ET MECHANISM AND PRICE SIGNALS 111
DEBT PROBLEMS OF TH E 1980S 112
UNEVEN GROWTH IN THE 1990S 117
CONCLUSION 121
PART III
MACROECONOMIC MODELS 125
6 MACROECONOMIC FLUCTUATIONS 127
ECONOMIC GROWTH 128
BUSINESS CYCLES 132
AGGREGATE SU PPLY 134
AGGREGATE DEMAND 141
A SIMPLE MODEL OF AGGREGATE DEMAND AND AGGREGATE SU PPLY 143
CHANGES IN NATIONAL OUTPUT AND THE AGGREGATE PRICE LEVEL 145
THE GREAT RECESSION 151
CONCLUSION 157
7 GROWTH MODELS 160
SIMPLIFYING ASSUMPTIONS 160
A BASIC SOLOW GROWTH MODEL 161
STEADY-STATE EQUILIBRIUM 163
. viii
CONTENTS
CONVERGENCE THEORY 167
INCORPORATING NATURAL RESOURCES 174
ENHANCED SOLOW MODEL 175
POLICY IMPLICATIONS FOR ECONOMIC GROWTH 176
CONVERGANCE THEORY REVISITED 180
CONCLUSION 187
8 EMPIRICAL ANALYSIS 190
TH EORY, EVIDENCE, AND POLICY 190
REVIEW OF DESCRIPTIVE STATISTICS 192
SIMPLE REGRESSION ANALYSIS 194
ESTIMATION OF A SIMPLE REGRESSION MODEL 198
MULTIPLE REGRESSION ANALYSIS 204
EMPIRICAL DETERMINANTS OF ECONOMIC GROWTH 210
AN EMPIRICAL MODEL FOR THE DETERMINANTS OF ECONOMIC GROWTH 211
POLICY IMPLICATIONS 216
MARI(ET-FRIENDLY STRATEGY OF DEVELOPMENT 217
COMPREHENSIVE DEVELOPMENT FRAMEWORI( 219
CONCLUSION 220
DATA APPENDIX 222
PART IV
DEMOGRAPHY 225
9 POPULATION DYNAMICS 227
MEASURES OF MORTALITY 228
LIFE TABLES 233
STATIONARY POPULATIONS 239
FE RTI LITY 240
MEASURES OF FERTILITY 240
AGE-SEX STRUCTURE OF A POPULATION 248
POPULATION PROJECTION 257
CONCLUSION 263
10 POPULATION TRANSITIONS 268
THE EPIDEMIOLOGICAL TRANSITION 268
TH E FERTILITY TRANSITION 278
THE DEMAND FOR CHILDREN 280
ECONOMIC DEVELOPMENT AND DECLINING FAMILY SIZE 284
DEMAND FOR BIRTH CONTROL 288
POST WORLD-WAR II TRENDS 290
AGING OF THE US POPULATION 294
LESSONS FROM EUROPE 297
CHINA'S POPULATION 300
MIGRATION 303
CONCLUSION 305
ix .
