Rethinking Economic Growth: Integrating Environmental Constraints into Growth Theories

Abstract

Theories of economic growth over the decades have classically been divided into exogenous (neoclassical) and endogenous growth models based on different ways of conceiving the long-run rate of expansion of the economy. Solow (1956) established an exogenous growth model that knows the effect of external factors for example technological co-development and accumulation of capital on economic growth; in contrast, Romer (1986) and Lucas (1988), developed an endogenous growth model wherein human capital, innovation, and spillovers of knowledge drive economic growth. But these models often pass over the critical effect of environmental constraints and sustainability on economic trajectories. This research paper, which introduces the idea of environmental pollution, extends traditional growth models. Based on the literature of Nordhaus (1991, 1994), on climate-economy coupling, Grossman and Krueger (1995) on the Environmental Kuznets. Using Popp (2012)'s directed technological change, we ask how environmental policies and green innovation as well as sustainable use of resources can affect economic growth. This research paper suggests an adjusted context founded on both economic expansion and ecological preservation by enveloping environmental pollution design coordination solutions and growth models.These outcomes show that integrating environmental elements into growth models can help in developing a better understanding of where economic growth can be designed to not only be sustainable in the sense of not creating detrimental GDP developments but also stabilize and/or reverse environmental degradation. This theory gives a solid ground for future empirical analysis regarding how economic growth and environmental sustainability interact with each other.