Determining Growth Saturation Point for Sustainable Development

Abstract

As economic growth may reach a point where further socio-economic development is not sustainable due to continual environmental degradation having negative development impact, the paper proposes a methodology for determining global central tendency for the saturation point of economic growth in its impact on sustainable development. The theoretical framework adopts a modified classical growth model, where economic growth is considered a means towards development, just as capital stock constitutes a means towards economic growth. In such a model, the impact of economic growth on sustainable development exhibits diminishing “marginal social productivity”, until development reaches a stationary state , where the impact of growth reaches its climax and any further growth will bring a decline on the level of development. Economic growth is measured by per capita income while selected development indicators measure development. The factors responsible for the diminishing “marginal social productivity” of economic growth are population growth and depreciation rates of capital stock and physical environment. For empirical investigation, econometric studies explored the dependence of various development indicators on per capita income (US$ PPP ) for 99 countries, with a-priori expectation that the development indicators will progress with economic growth at a decreasing rate and reach saturation point. The results revealed that the saturation point or ultimate level of sustainable development is attained at per capita income of $36,400 500 ( PPP ), a level exceeded by 13 percent of the countries. Results also showed that environmental degradation is both a causal factor and consequence of contemporary growth.