Feasibility and Optimality of Sustainable Growth under Materials Balance

Pollution from consumption and production is an inevitable part of economic processes. We employ a materials balance approach and develop an endogenous growth theory, with recycling activity, to examine the evolution of the economic and environment systems. This paper provides feasibility and optimality conditions for sustainable economic growth with rising environmental quality. The fundamental condition of feasibility is that the flow of natural resources, which eventually returns to the environment as waste, has a negative growth rate in the long run. Recycling may not necessarily matter for an optimal sustainable growth. J.E.L. Classification Code O41, Q01, Q53, Q56. * Corresponding author. School of Social Sciences, Waseda University, 1-6-1 Nishiwaseda Shijuku, Tokyo 169-8050 Japan, Tel: 81-3-5286-1908 / Fax: 81-3-3204-8962. E-mail address: [email protected] (Ken-Ichi Akao). We are grateful to two anonymous referees, K. Domon, Y.H. Farzin, H. Koide, S. Nakamura, and A. Onuma for detailed comments that substantially improved the paper. Partial financial support from Waseda University (1999A24-2) and the Ministry of Education, Science, Sports, and Culture of Japan (11730017) are gratefully acknowledged. 1