Research background
Economic growth significantly impacts national wealth and per capita income by enhancing Gross Domestic Product (GDP) and Gross National Income (GNI) Economists globally are increasingly interested in researching the interplay between economic growth, environmental sustainability, and societal influences Many nations are now prioritizing the sustainable use of natural resources and environmental protection as key objectives of economic growth This shift indicates that countries are focusing on conserving their scarce natural resources for future generations, rather than exploiting them without regard for environmental degradation.
Since its introduction in the 1987 Brundtland Report by the World Commission on Environment and Development, sustainable development has gained popularity worldwide Economists have explored the connection between economic growth and sustainable development, often measuring it through genuine saving rates or adjusted net savings Research consistently shows that sustainable development is closely linked to economic growth.
Hamilton et al (1999) analyzed genuine saving rates across both developing and developed countries, incorporating factors such as gross savings, fixed capital, educational expenditures, and pollution emissions Their findings revealed that high-income countries exhibited positive genuine saving rates, whereas developing nations faced negative rates These negative genuine savings are indicative of a decline in overall well-being.
1 The United Nations, Report of the World Commission on Environment and Development: Our Common Future, 1987
2 Hamilton C (1999), “The genuine progress indicator: methodological developments and results from Australia.” Ecological Economics 30: 13–28
Atkinson et al (2003) investigated the correlation between natural resource abundance and GDP per capita growth rate, finding a significant negative relationship.
A study by Grace et al (2004) analyzed the genuine saving rates of Taiwan and the United Kingdom, highlighting that the United Kingdom's low annual GDP growth rate is associated with a correspondingly low genuine saving ratio to GDP.
A study by Dietz et al (2007) examined genuine saving rates in both rich and poor natural resource countries, revealing that wealthier resource-rich nations tend to have lower genuine saving rates compared to their poorer counterparts Additionally, the research indicated that the detrimental impact on genuine saving rates diminishes as institutional quality improves.
Therefore, economic growth affects significantly to genuine saving rate of a nation
Genuine saving rates are influenced by various factors, including institutional quality and resource availability These rates are primarily determined by the economic growth rate, with developed countries typically exhibiting higher genuine saving rates compared to their developing counterparts.
Statement of problem
Vietnam's economic growth has been remarkable since the implementation of the "Doi Moi" policy in 1986, which opened the market to international corporations This shift has positioned Vietnam as one of the fastest-growing economies in Asia, significantly improving living standards However, despite nearly three decades of growth and an average economic growth rate of 7.07% from 1996 to 2010, Vietnam remains one of the poorest countries globally, with a per capita income of only $723 in 2010.
3 Atkinson G., Hamilton K (2003), “Saving, Growth and the Resource Curse Hypothesis.” World Development
4 Grace T R Lin, Hope C (2004), “Genuine savings measurement and its application to the United Kingdom and Taiwan”, The Developing Economies XVII-1: 3−41.
5 http://data.worldbank.org/data-catalog/world-development-indicators
Between 1996 and 2010, Singapore experienced an impressive annual average GDP growth rate of 5.87%, culminating in a GDP per capita of US$32,641 by 2010 In contrast, the Netherlands had a significantly lower average GDP growth rate of 2.2%, with a GDP per capita of US$26,553 in the same year This comparison highlights the economic disparities between Vietnam, Singapore, and the Netherlands during this period.
Singapore and the Netherlands are high-income countries, whereas Vietnam falls into the low-middle-income category This raises a significant question: can nations experience rapid economic growth while still having lower per capita income? This paradox of economic growth versus development is a global phenomenon that warrants further exploration.
Sustainable development, also known as genuine saving, offers a fresh perspective for assessing a nation's growth and wealth This concept enhances traditional indicators by incorporating gross saving alongside factors such as fixed capital, education, environmental health, and natural resource management Since 1996, the World Bank has adopted this comprehensive measure, highlighting its greater utility and value in evaluating economic progress.
“adjusted net saving” in World Development Indicators It also presents in the Little Green Data Book from 2000
The relationship between economic growth and various life aspects, including society, the environment, and natural resources, remains underexplored, particularly in the context of Vietnam Research on how current consumption patterns affect future generations is still limited, highlighting a critical gap in understanding the impact of economic growth on sustainable development in the country.
Research objectives
This study examines the influence of economic growth and various factors on sustainable development, with a particular focus on Vietnam Utilizing data from 90 countries sourced from the World Bank, the analysis covers the period from 1996 to 2010.
These main objectives will be as follows:
1.3.1 Evaluating the significance of economic growth on sustainable development
6 http://data.worldbank.org/data-catalog/world-development-indicators
1.3.2 Evaluating the effect of export raw agricultural products on sustainable development
1.3.3 Evaluating the effect of export natural resources on sustainable development
1.3.4 Evaluating the significance of economic growth on sustainable development in developing countries
1.3.5 Finding valuable lessons for sustainable development in Vietnam.
Research questions
1.4.1 Will faster growth lead to sustainable development?
1.4.2 Will wealthier economies be more sustainable than poorer economies?
1.4.3 Does the increased export of raw agricultural products lead to decrease of sustainable development?
1.4.4 Does the increased export of natural resource lead to decrease of sustainable development?
1.4.5 Will faster growth lead to sustainable development in developing countries?
1.4.6 Which lessons should Vietnam could apply to maintain the state of sustainable development?
Research methodology
of economic growth such as GDP growth on sustainable development by OLS estimation
This paper establishes hypotheses based on empirical studies conducted in the past and tests their validity using econometric techniques.
To address the endogeneity issues between sustainable development and GDP growth, this paper utilizes Two-Stage Least Squares (TSLS) estimation This method helps determine the presence of reverse causation between GDP growth and sustainable development Specifically, it aims to investigate whether high adjusted net savings contribute to increased GDP growth.
Structure of thesis
This thesis comprises six chapters, beginning with an introduction to the research background and its relevance to Vietnam's economic growth and sustainable development Chapter II reviews the literature on economic growth, economic development, and sustainable development, along with empirical studies conducted by researchers over the past decades Chapter III outlines the data collection process, data analysis, and the econometric techniques employed Finally, Chapter IV presents the results derived from testing hypotheses related to the models discussed in the thesis.
Chapter V will derive a state of sustainable development and some main points of Agenda
The concluding chapter summarizes the key findings of the research on Vietnam, outlines potential policies, and highlights the limitations of the study while proposing avenues for future exploration.
7 Dimitrios Asteriou and Stephen G Hall, Applied Econometrics a modern approach, revised edition, Palgrave
Concepts of economic growth, economic development and sustainable development
Economic growth is quantitative change or expansion in a country's economy
Economic growth is conventionally measured as the percentage increase in GDP or GNP during one year (World Bank)
Economists have often conflated economic growth with economic development; however, while economic growth is essential, it alone does not ensure development Additionally, GDP remains a limited indicator of economic welfare, as it overlooks critical factors such as leisure time, access to healthcare and education, environmental sustainability, and the promotion of freedom and social justice.
While economic growth usually refers to increase in a country's production or income per capita, economic development mentions to broadly scope From the point of view of E
Economic development, as defined by Wayne from Kansas State University, encompasses economic growth that is accompanied by shifts in output distribution and structural changes within the economy Key indicators of this development include an enhancement in the material well-being of the lower half of the population, a reduction in agriculture's share of Gross National Income (GNI), and a corresponding rise in the GNI share of industry and services Additionally, improvements in the education and skills of the labor force, along with significant domestic technological advancements, are vital components of this process.
8 E Wayne Nafziger, Economic Development, fourth edition, Cambridge University Press, 2006
Economic development signifies a qualitative transformation in a nation's economy, driven by advancements in technology and social progress A key indicator of this development is the rise in GNP per capita or GDP per capita, which illustrates enhancements in economic productivity and the overall material well-being of the population.
Three main objectives of economic development include:
(1) To increase the ability and widen the distribution of basic-life sustaining goods;
(2) To raise the level of livings;
(3)To expand the range of economics and social choices
Various indexes are utilized to assess a nation's development, with different approaches tailored to specific aspects For instance, the Human Development Index (HDI) evaluates human development, while the GINI index measures income inequality.
The United Nations Development Program (UNDP) assesses national development through the Human Development Index (HDI), which is reported annually This index evaluates human development by integrating three key factors: income, life expectancy, and education.
The GINI index is a key metric that evaluates income distribution within a nation, highlighting the disparity between the wealthy and the overall income levels It underscores the importance of income equality, a challenge that exists both within individual countries and across different nations, including those that are highly developed.
2.1.3 Sustainable development There have been many different definitions about sustainable development The United Nations Brundtland report at World Commission on Environment and Development in 1987 gives a basic idea about sustainable development This concept defines sustainable development as : “… meets the needs of the present without compromising the ability of future generations to meet their own needs " 9
This definition expressed strongly that the current consumption of resources for economic development should not affect future generations This definition gives a general
9 The United Nations, Report of the World Commission on Environment and Development: Our Common concept for development; it did not give a way to measure factors contributing on sustainability
Sustainable development, as defined by Pezzey (1992), is characterized by non-declining utility, forming a fundamental concept in the field Additionally, Pearce and Atkinson (1997) introduced a new paradigm that emphasizes the importance of strong sustainability.
The OECD defines sustainable development as a pathway that ensures the maximization of human well-being for current generations without compromising the well-being of future generations.
The United Nations (2008) emphasized that sustainable development must maintain a nation's wealth over time, relying on various production stocks, including fixed, human, social, and natural capital To address potential declines in these capital stocks, a compensatory approach is essential The UN group also proposed a limited set of indicators for international comparisons, highlighting the challenges in implementing this concept effectively.
Approaches of sustainable development
Sustaining economic growth can occur through two main avenues One key aspect is the limited substitutability between reproducible capital and nonrenewable resources, allowing for continued growth even as nonrenewable resource stocks gradually diminish.
Second, technological changes will enable society to shift from reliance on non-renewable resource to another and finally to a new renewable resource
Sustainability can be understood through two main paradigms: ecological and neoclassical, often described as strong and weak sustainability These concepts address whether natural capital and reproducible capital can be maintained together or separately A key point of contention in this discussion is the extent to which natural capital can be substituted for reproduced capital.
10 Pezzey J (1992), “Sustainable Development concepts.” World Bank Environment paper Number 2
11 OECD, 2001, “Sustainable Development: Critical issues”, p 2
12 The United Nations, 2008, “Measuring Sustainable Development”
Natural capital refers to natural resources like coal, oil, forests, and land, while reproduced capital encompasses human-made assets, also known as human capital Human-made capital can partially substitute for natural capital, thereby decreasing society's dependence on natural resources This substitution enhances the value of services derived from both renewable and non-renewable resources.
Weak sustainability emphasizes the importance of substitutability between reproducible and natural capital, suggesting that as human-made capital becomes more valuable, it can effectively replace natural capital This perspective posits that the overall value of the aggregate stock will increase over time.
Strong sustainability emphasizes the need for a balance between natural and manufactured capital To safeguard future economic opportunities, it is essential to impose conditions on the depletion of natural resources.
2.2.1 Weak sustainability: the neoclassical paradigm
Weak sustainability emphasizes development that maintains intergenerational welfare without degradation Rooted in economic principles rather than ecological ones, it suggests a limitation on growth to ensure that well-being does not decline over time, as highlighted by Pezzey (1992).
In the case of reduction of welfare, he called it as “survivability”
Pearce and Atkinson (1997) proposed a formula for measuring sustainable development, grounded in the concept of unlimited substitution between man-made and natural capital, as well as Pezzey’s definition of sustainable development.
The formula for sustainable development is represented by the index Z, which incorporates the depreciation of man-made capital (DM) and natural capital (DN) The rates of depreciation for both man-made (DM/Y) and natural capital (DN/Y) are crucial for understanding their impact on sustainability Additionally, national savings (S) and the saving rates (S/Y) play a significant role in this equation, highlighting the importance of financial resources in fostering sustainable growth.
13 Pearce D., Atkinson G., Hamilton K., Dubourg R., Young C and Munasinghe M (1997), Measuring Sustainable Development: Macroeconomics and the Environment, Cheltenham: Edward Elgar Publishing Ltd., United Kingdom
Sustainable development is compromised when the value of Z exceeds zero, indicating that higher saving rates must outpace the depreciation of both natural and man-made capital to achieve sustainability.
2.2.3 Strong sustainability: the ecological paradigm
Strong sustainability emphasizes the limited substitutability between man-made and natural capital, contrasting with weak sustainability A study by Herman Daly and John Cobb (1999) supports this view, highlighting several key points Firstly, the loss of certain natural resources crucial for production could lead to catastrophic consequences Secondly, as production processes evolve, the substitutability of natural capital diminishes, leading to the depletion of resource stocks Lastly, they assert that the elasticity of substitution between natural and reproducible capital is effectively zero due to the unique characteristics of critical natural capital This underscores the necessity of conserving specific stocks of natural capital, regardless of the associated opportunity costs.
They underestimated the role of prices and technological changes because of market imperfections brought about by a preponderance of large companies or State-own companies
Prices are not always an accurate reflection of resource scarcity and fail to consider the needs of future generations As technology advances, it is likely to reduce prices over time However, from an ecological perspective, there is a prevailing skepticism regarding the potential of technological innovation to effectively address environmental challenges in the future.
Objectives and significance of sustainable development
In 1992, the United Nations Conference on Environment and Development (UNCED) took place in Rio de Janeiro, Brazil, where the international community adopted Agenda 21 This pivotal document integrated environmental, economic, and social concerns into a cohesive policy framework, offering numerous recommendations and detailed proposals for nations worldwide.
In "For the Common Good," Daly and Cobb (1999) emphasize the importance of promoting sustainable practices by advocating for the reduction of wasteful consumption, alleviating poverty, protecting air and oceans, preserving biodiversity, and advancing sustainable agriculture.
In the Johannesburg Declaration on sustainable development in 2002, the task of all nations in the world is “Taking action for Earth’s future” as follows: 16
Improving global equity and an effective global partnership for sustainable development;
Integration of environment and development at the international level;
Adoption of environment and development targets to revitalize and provide focus to the Rio process;
According to this summit, most important challenges which the world faces today include:
Increasing ability to meet the challenges of globalization;
Reducing waste and over-reliance on natural resources;
Ensuring people have access to the energy sources needed;
Reducing environment-related health problems;
Improving access to clean water to raise children and maintain their livelihoods for children.
Indicators of sustainable development
In their research, Pearce et al (1997) and Hamilton et al (1999) proposed a novel indicator for assessing sustainable development, aligning with the United Nations guidelines established in 1993 They quantified the costs associated with restoring the environment to its original state, defining this as the total of net investments in produced assets along with changes in the stocks of natural resources and pollutants.
15 The United Nations, Earth Summit Agenda 21, Program of Action from Rio, 1992
16 The United Nations, Johannesburg Summit 2002, Taking Actions for Earth Future, 2002
Research from 1970 to 1993 highlighted significant depletion of natural resources and carbon dioxide emissions, revealing that numerous countries exhibited negative genuine savings rates However, this analysis fails to consider the impact of human capital on these findings.
They added educational expenditure as value added in genuine savings, and used this formula for calculating genuine savings of many developing countries They defined genuine savings as follows:
Adjusted net savings or Genuine Savings = Gross Domestic Savings – Consumption of Fixed Capital (Depreciation) + Education Expenditure – Depletion of Nonrenewable Natural
Graph 2.1 : How to calculate adjusted net savings
According to the World Bank, adjusted net savings serve as a crucial indicator of sustainable development globally A study by Hamilton et al (1999) revealed that high-income countries exhibit positive adjusted net savings, whereas developing nations often report negative figures These negative rates are linked to a decline in overall well-being, highlighting the disparities in economic sustainability between different regions.
2.4.2 Index of Sustainable Economic Welfare or ISEW
Daly et al (1999) developed the Index of Sustainable Economic Welfare (ISEW) to assess the connection between welfare and environmental degradation This index differentiates between various forms of pollution—such as water, air, and noise—and the loss of land, including wetlands and farmland By evaluating conventional national income accounts alongside the impacts of environmental damage and the depletion of natural resources, the ISEW provides a more comprehensive view of economic welfare Its application can be found in numerous studies (Lawn, 2003; Clarke, 2005).
2.4.3 Genuine Process Indicators or GPI
The Genuine Progress Indicator (GPI) serves as an alternative measure for assessing sustainable development, providing a more comprehensive evaluation of economic progress compared to traditional metrics like GDP By adjusting GDP values to account for factors such as income distribution, depletion of social and natural capital, and the costs associated with mobility and pollution, GPI offers a nuanced perspective on economic health (Hamilton C 1999; Robert et al.).
2.4.4 Environmental Sustainability Index or ESI
Yale University developed the Environmental Sustainability Index (ESI) 2005 using data from 140 countries provided by the World Bank, creating a comprehensive profile of national environmental stewardship based on 21 key indicators These indicators assess various aspects, including air and water pollution, environmental sustainability, biodiversity, and ecosystem health The core measurement of environmental sustainability focuses on the inherent environmental carrying capacity and eco-efficiency, emphasizing that improvements in these areas require significant changes in societal production and consumption practices (Lee et al 2005).
The pollution category includes 2 indicators: Air Quality (SYS_AIR) and Water Quality (SYS_WQL) The category for eco-efficiency related measures includes 9 indicators:
Biodiversity management (SYS_BIO) is crucial for maintaining ecological balance, while effective land use (SYS_LAN) contributes to sustainable development Strategies for reducing air pollution (STR_AIR) and ecosystem stress (STR_ECO) are essential for protecting environmental health Additionally, minimizing waste and consumption pressures (STR_WAS) alongside reducing water stress (STR_WAT) fosters resource conservation Implementing natural resource management (STR_NRM) practices enhances sustainability, and improving energy efficiency (CAP_EFF) plays a vital role in mitigating greenhouse gas emissions (GLO_GHG).
2.4.5 Inclusive wealth index or IWI
Dasgupta (2007) proposed a method for measuring sustainable development through the concept of inclusive wealth, emphasizing that sustainable development occurs when inclusive investment is not negative relative to the population He defined inclusive wealth as the shadow value of an economy's productive base and inclusive investment as the shadow value of the net change in that base To assess economic performance, he integrated various indicators, including the Human Development Index, total fertility rate, adult and female literacy rates, government corruption index, life expectancy at birth, under-5 mortality rate, and the percentage of the rural population.
Linkage of various determinants of sustainable development
Economic growth is typically measured by GDP or GNI, while economic development is assessed through the Human Development Index (HDI), which incorporates income, education, and life expectancy In contrast, sustainable development encompasses a wider range of factors, integrating economic, environmental, and social dimensions Harris et al (2001) emphasize that sustainable development should focus on three key activities that reflect this comprehensive approach.
Economic activities contribute to the growth of economic welfare and income of a nation; they ensure to the creation of jobs, competitiveness in trade, wealth of a nation and income
Environmental activities play a crucial role in conserving the environment and minimizing the consumption of both renewable and nonrenewable natural resources These efforts are essential for maintaining biodiversity, ensuring atmospheric stability, reducing CO2 emissions, and managing polluted wastewater effectively.
Social activities create fairness in distribution of these welfare opportunities for a community; including all social services such as health care programs, education, gender equity and accountability of politics
Sustainable development occurs when a nation effectively integrates economic, social, and environmental factors simultaneously This concept serves as a bridge linking key economic determinants such as income and welfare, social determinants like education expenditure and gender equity, and environmental considerations including pollution management and natural resource conservation While there are limitations to this concept, it remains a crucial framework for understanding the essential components of national development.
Figure 2.1: The three components of sustainable development
Source : http://www.myacpa.org/task-force/sustainability/primer.cfm
Benefits and drawbacks of adjusted net savings
Sustainable development is a crucial concept as it integrates physical, human, and natural capitals It serves as a development indicator that highlights issues related to natural capital and offers a broader perspective on a nation's development compared to traditional national accounts This concept emphasizes that the current generation's consumption should prioritize not only economic growth but also the preservation of natural resources, reduction of air pollution, and investments for future generations Ultimately, excessive consumption today leads to greater depletion for future generations.
Hamilton et al (1999) established a link between sustainable development and a nation's income, revealing that high-income countries tend to have a positive genuine saving rate, whereas developing countries experience a negative genuine saving rate This negative trend in genuine saving is associated with a decline in overall well-being.
Lele (1991) thought this concept emerged as the latest development catch phase and embraced it as the new paradigm of development
Grace et al (2004) suggest that this indicator can be utilized to define wealth in a broader context beyond traditional national accounts, aiming to capture the value of the net change across various assets that are crucial for development.
Sustainable development offers numerous benefits, yet its current measurement indicators reveal significant shortcomings The components used to assess development often overlook critical factors that influence a country's progress, both directly and indirectly Despite the World Bank's introduction of the adjusted net savings formula in 1997, it fails to adequately account for essential environmental and social activities, which play a crucial role in a nation's development.
Lele (1991) identified two key weaknesses in sustainable development: an incomplete understanding of poverty and environmental degradation, and confusion surrounding the roles of economic growth, sustainability, and participation These issues contribute to inadequacies and contradictions in policymaking, particularly evident in international trade, agriculture, and forestry.
J Ram (2005) showed that formula of adjusted net savings is imperfect measurement both conceptual and empirical characteristics and suggested that a global approach need to find another sustainability issues, and natural capital is not corporate in national accounting.
Empirical Models
In 2010, a study estimated the determinants of sustainable development by analyzing adjusted net savings using cross-sectional data from developing economies between 2001 and 2006 The research focused on two types of savings: gross national savings and adjusted net savings, with the latter defined as gross savings minus fixed capital, highlighting the significance of influences on gross savings for adjusted net savings Economic development was measured using the Human Development Index (HDI), while the saving capacity of a nation was found to be linked to its population structure, particularly the age dependency ratio Additionally, many developing countries were noted to have less developed financial systems, impacting their overall savings ability.
In developing economies, the adjusted net saving rate is influenced by various determinants, contrasting with those in developed nations Economic activities predominantly occur within informal sectors, highlighting the necessity for formalizing the economy This formalization is essential for measuring financial deepening, which is represented by the ratio of money supply to national income.
Adjusted net saving rates are influenced by natural resources, as income derived from the export of fuels, ores, and metals significantly contributes to a nation's savings Consequently, the depletion of these natural resources leads to a decline in adjusted net savings.
From these arguments, Hess showed the general equation for the adjusted net saving rates as follows:
ASY = f (HDI, GYP, APL, FIN, XR) (2-3)
The gross national saving rates, bolstered by export income from natural resources, play a crucial role in enhancing government revenues and public savings The estimation of a nation's gross saving rate relies on consistent determinants that influence these financial metrics.
SY =f ' (HDI, GYP, APL, FIN, XR) (2-4)
From 2000 to 2006, the adjusted net saving rate (ASY) reflects the economic sustainability of countries, while the Human Development Index (HDI) for 2000 provides insights into overall societal well-being The average growth rate of real GDP per capita (GYP) during this period highlights economic performance, and the average share of the population aged 15-64 (APL) for 2000 and 2006 indicates the demographic potential for labor Additionally, the ratio of liquid liabilities to GDP (FIN) in 2000 serves as a measure of financial stability and economic health.
XR = share of fuels, ores, and metals in merchandise exports in 2000
SY = average gross national saving rate for 2001–2006
GX = average annual growth rate in exports of goods and services for 2000–2006
In 2000, foreign direct investment (FDI) as a share of GDP was analyzed, revealing that key factors influencing economic performance included the Human Development Index (HDI), the percentage of the prime labor force population, the share of natural resources in exports, and financial development Interestingly, economic growth was not a significant explanatory variable Instead, gross national savings and changes in the population share aged 15 to 64, alongside the economic growth rate, emerged as crucial determinants of economic success.
To estimate economic growth, the reduced form equation considers the flow of savings into investment, using adjusted net saving as an indicator of net capital formation While adjusted net saving accounts for human capital formation and natural resource depletion, it does so only partially Key determinants for estimating economic growth include the Human Development Index (HDI), average productivity level (APL), the real growth rate of goods and services exports, and foreign direct investment (FDI) as a share of national output.
GYP=g( ASY OR GRS, HDI, APL, GX FDY) (2-5)
The findings indicate that the savings rate does not significantly impact the average annual growth rate of real GDP per capita In contrast, APL and GX are statistically significant factors, while HDI and FDY do not serve as explanatory variables.
Dietz et al (2007) examined the interplay between resource abundance and indicators of institutional quality, specifically focusing on corruption, bureaucratic efficiency, and rule of law Building on Atkinson and Hamilton's (2003) findings of a positive correlation between resource abundance and overall institutional quality regarding gross investment and savings, they aimed to determine if the adverse impact of resource abundance on genuine savings could be attributed to policy failures To address this, they developed a model that illustrates the relationship between natural resource endowment and institutional quality in explaining genuine savings.
A study analyzing data from 115 countries over 18 years revealed that factors like per capita income, economic growth, age dependency, and urbanization significantly influence gross savings The researchers developed two models to estimate gross savings and adjusted net saving rates, incorporating these key determinants.
GrossSR i,t=α+β1lnY i,t+β2Growthi,t-1+β3Agei,t+β4Urbani,t +β5Insti,t+β6Rsi,t+β7Insti,txRs i,t+Tt+ε i,t (2-6)
GSR i,t=α+β1lnY i,t+β2Growthi,t-1+β3Agei,t+β4Urbani,t +dβ5Insti,t+β6Rsi,t+β7Insti,txRs i,t+Tt+ε i,t (2-7)
They used reduced-form model, fixed effect estimation, GMM estimation and Arrellano-Bond dynamic model with variables genuine savings, gross savings, growth, GDP,
18 Dietz S., Neumayer E., Soysa I D (2007), “Corruption, the resource curse and genuine saving”, Environment and Development Economics 12:33-53
19 Atkinson G., Hamilton K (2003), “Saving, Growth and the Resource Curse Hypothesis.” World Development
Between 1793 and 1807, research indicated that wealthy resource-rich countries tend to have lower genuine savings compared to poorer resource-rich nations This phenomenon is exacerbated by institutional failures, which further depress genuine savings levels However, the detrimental impact of resource abundance on genuine savings diminishes as corruption levels decrease.
According to the key findings of Hess (2010) and Grace et al (2004), models that explore the relationship between economic growth and adjusted net savings incorporate several determinants, including GDP growth rate (GDPGR), GDP per capita (GDPPC), Human Development Index (HDI), median age (MS AGE), urban growth rate (UBGR), and consumer price index (CPI).
Model 1: Faster growth of economics will lead to sustainable development ANSi=α0+α1GDPGRi+α2HDIi+α3MSi+α4XRi+α5AGEi+α6UBGRi+α7CPIi+εi (2-8)
Where i denotes for country i, ε is residual
Models 2: Wealthier economies will be more sustainable than poorer economies
ANSi=β0+ β 1Lg(GDPPCi)+ β 2UBGRi+ β 3AGEi+ β 4XRi+ β 5 CPIi+μi (2-9)
Dietz et al (2007) and Atkinson et al (2003) identified a negative relationship between adjusted net savings and natural resources In response to this finding, I developed two new models focusing on the export of raw agricultural products and ores and metals.
Model 3: Higher rate of agricultural export will be lessen sustainable development ANSi=γ0+ γ 1AGRIi+ γ 2UBGRi+ γ 3MSi+ γ 4XRi+ γ 5AGEi+ γ 6CPIi+ψi (2-10)
Model 4: Higher rate of ores and metals export will be lessen sustainable development ANSi=δ0+ δ 1ONMi+ δ 2UBGRi+ δ 3MSi+ δ 4XRi+ δ 5AGEi+ δ 6CPIi+φi (2-11) From the finding of Hess (2010), Hamilton et al (1999) about determinants which can affect to adjusted net savings in developing countries, I set up one more model as model 1 with data of developing countries only
Model 5: Faster growth of economics will lead to sustainable development in developing countries
Where i denotes for country i, ε is residual Determinants that will be used for estimating models include:
Adjusted net saving (ANS) is a key indicator that reflects the genuine saving rates by factoring in investments in human capital, such as education expenditures, as well as the depletion of natural resources, including energy, minerals, and forests Additionally, ANS accounts for the environmental damages caused by pollution, specifically the impacts of carbon dioxide and particulate emissions.
Empirical studies relating to sustainable development
Using data for 2001-2006 of developing economies, he estimates the determinants of the adjusted net saving rate For comparison, he also runs regression for estimating the determinants of gross saving
ASY=f (HDI, GYP, APL, FIN, XR) (2-13)
SY=f ' (HDI, GYP, APL, FIN, XR) (2-14)
GYP=g (ASY OR GRS, HDI, APL, GX FDY) (2-15)
ASY= adjusted net saving rate for 2000-2006
SY = average gross national saving rate for 2001–2006
In 2000, the Human Development Index (HDI) served as a crucial metric for assessing overall societal progress The average growth rate of real GDP per capita (GYP) indicated economic performance during this period Additionally, the average share of the population aged 15-64 was analyzed for both 2000 and 2006, highlighting demographic trends Furthermore, the average annual change in this age group's population share from 2000 onward provided insights into shifting workforce dynamics.
FIN= ratio of liquid liabilities to GDP in 2000
XR = share of fuels, ores, and metals in merchandise exports in 2000
GX=average annual growth rate in exports of goods and services for 2001–2006
FDY= foreign direct investment as a share of GDP in for 2001–2006
Hess found that the HDI, the percentage of population of labor force age from 15 to
Natural resources account for 64% of exports and play a crucial role in financial development However, economic growth itself is not a significant explanatory variable Key determinants include gross national savings and the changing share of the population aged 15 to 64, alongside the economic growth rate.
A simultaneous model estimation for economic growth and adjusted net saving reveals that both adjusted net saving and gross saving have a statistically insignificant impact on the average growth rate of real GDP per capita.
Yacouba (2009) investigated the relationship between adjusted net savings and welfare changes from 1971 to 2000, utilizing panel data from 36 developing and developed countries Employing the Human Development Index (HDI) and Infant Mortality Rate (IMR) as welfare proxies, he controlled for Gross National Income (GNI) while treating net national savings (NNS) as a regressor Through a fixed effect model for estimation, the study revealed a significant but weak positive correlation between adjusted net savings and welfare.
In this study, they used panel data of 115 countries within 18 years from World Bank source for studying the relationship between genuine saving, corruption and the resource
Arrellano-Bond dynamic model with variables genuine saving rate, gross saving, growth, GDP, age, urbanization, investment and resource rent They set up two hypotheses for relationships as follows:
GrossSR i,t=α+β1lnY i,t+β2Growthi,t-1+β3Agei,t+β4Urbani,t +β5Insti,t+β6Rsi,t+β7Inst i,txRs i,t+Tt+ε i,t (2-16)
GSR i,t=α+β1lnY i,t+β2Growthi,t-1+β3Agei,t+β4Urbani,t +β5Insti,t+β6Rsi,t+β7Inst i,txRs i,t+Tt+ε i,t (2-17)
Research indicates that nations with abundant natural resources tend to exhibit lower genuine saving rates compared to their less resource-rich counterparts Additionally, institutional failures can hinder genuine saving efforts However, the detrimental impact of resource wealth on genuine saving diminishes as levels of corruption decrease.
A study conducted on Pakistan's economic growth from 1971 to 2005 analyzed the relationship between GDP per capita, carbon dioxide emissions, energy consumption, population, and urbanization using time series data Employing a VAR model and ADF test, the researchers found a significant positive correlation between economic growth and carbon dioxide emissions in the long term The findings indicate that energy-driven economic development significantly contributes to increased carbon dioxide emissions.
This paper analyzes the conceptual and empirical aspects of genuine saving, highlighting its policy implications The study utilizes the World Bank's formula for measuring genuine savings to provide a comprehensive understanding of this economic indicator.
GENSAV= (GDS-Dp+EDU-Rn,j-CO2damage)/GDP (2-18)
Where GENSAV is genuine domestic saving rates; GDS is gross domestic savings
Dp is depreciation of physical capital; EDU is current expenditure on education
Rn,i is the rent from depletion of i-th natural capital (energy, mineral and forest depletion are included); CO2 damage is damage from CO2 emissions
His analysis showed that the imperfect of the measure both conceptual and empirical characteristics He also found that the error of policy implications based on this measurement
From that, he suggested a global approach which need to find another sustainability issues, and natural capital is not corporate in national accounting
This study analyzed data from 140 countries using the ESI 2005 index, revealing that factors like GDP per capita, land availability, and civil and political liberties significantly influence environmental sustainability The findings indicate that as income per capita rises, populations decrease, and civil and political freedoms increase, environmental sustainability improves The ESI serves as a composite profile of national environmental stewardship, incorporating 21 indicators that assess air and water pollution, biodiversity, and ecosystem health Key measurements of environmental sustainability focus on the inherent environmental carrying capacity and eco-efficiency, which can only evolve through changes in societal production and consumption patterns While there is some overlap between pollution metrics and eco-efficiency measures, a direct relationship between the two is not evident.
From the time series data of United Kingdom and Taiwan from 1970 to 1998, they calculate genuine saving in each country by using robustness analysis and sensitivity analysis
From the formula of World Bank, they adjust by adding the deduction of air and water pollution cost
Genuine savings, also known as adjusted net saving, is calculated by taking gross domestic savings and subtracting the consumption of fixed capital (depreciation), while adding education expenditure Additionally, it accounts for environmental costs, including air and water pollution, CO2 damage costs, and the depletion of nonrenewable natural resources.
(2-19) They found that UK has a lower rate of genuine saving than Taiwan and lower annual GDP growth rate exhibits low rate of genuine saving to GDP
In their study, they used data of 91 countries from 1980 to 1995, the World Bank
The study identified genuine saving, GDP8095, GDP80, education, and investment as key variables and utilized cross-section econometrics to reveal a significant negative relationship supporting the resource curse hypothesis The findings suggest that the resource curse may stem from governments' inability to sustainably manage large resource revenues Furthermore, the research indicates that countries experiencing slower growth often exhibit a combination of natural resource management, macroeconomic policies, and public expenditure practices that contribute to low genuine saving rates.
Using data from the 1970s, 1980s, and 1990s provided by the World Bank, researchers calculated the genuine saving rates for various countries This calculation involved analyzing gross domestic investment, net foreign borrowing, gross saving, depreciation, and net saving through a specific formula.
Genuine Savings or Adjusted net saving = Gross Domestic Savings – Consumption of Fixed Capital (Depreciation) + Education Expenditure – Depletion of Nonrenewable
Natural Resources – CO2 Damage Costs (2-20)
Research indicates that high-income countries experience a positive genuine saving rate, whereas developing nations face a negative rate This negative genuine saving rate is linked to a decline in overall well-being.
Table 2.2: Summary of empirical studies related to sustainable development
No Researchers Data and scope of research
Adjusted net saving and Gross Saving,
- HDI, CPL, FIN, XR are important
36 countries, developed and developing countries, period 1971-2000
- Panel data, fixed effect model
- Sagan and Basman test for quality of instrument
Positive relationship between ANS and HDI, IMR, GNI but weak magnitude
115 countries, 18 years, World Bank data
Panel data Using reduced form, fixed effect estimation, GMM estimation
- Rich resource countries have lower rate of ANS than poor resource countries
- If corruption can be reduced, negative
Arrelano –Bond dynamic model effect resource abundance on GS low
Time series data, period 1971-2005 in Pakistan
CO2 emission VAR model, ADF test
Positive relationship between economic growth and CO2 emission in long term, economic development is energy driven
Dp+EDU-Rn,j- CO2damage)/GDP
Imperfect of the measure both concept and empirical characteristics
ESI increases when income per capita increase, population decrease, degree of civil and political liberty higher
United Kingdom and Taiwan data, period 1970- 1998, World Bank data
Genuine saving rate (GS) of UK is lower than Taiwan,
Low GDP growth rate will lead to low rate of
91 countries period 1985-1995, World Bank data
Cross section Resource curse hypothesis
Growth lagged combined of natural resource, macroeconomic and public expenditure policies have lead to low rate of ANS rate
Calculation GS in high income countries is positive while this indicator is negative in developing countries,
GS negative will leads to well-being decrease
This framework provides a method to assess the influence of economic growth on sustainable development by estimating the relationship between GDP growth and adjusted net savings, while controlling for variables such as HDI, MS, AGE, UBGR, and CPI, with ELF85 as the instrumental variable A similar approach will be employed to analyze the connection between sustainable development and the export of raw agricultural products, ores, and metals, highlighting the impact of economic growth on sustainable development in developing countries.
Chapter remarks
This chapter focus on theoretical literature with definitions of economic growth,
Economic growth -GDP growth -GDPPC
Control variables HDI, MS, AGE, UBGR, CPI
Export -Raw agricultural products AGRI
Instrumental variables play a crucial role in evaluating the impacts of economic growth on sustainable development Research consistently shows a positive relationship between economic growth and sustainable development in both developed and developing countries Numerous studies indicate that higher economic growth rates contribute to sustainable development, while various factors significantly influence this relationship, including natural resources, institutional quality, age dependency ratios, urbanization, and human investment.
Econometric techniques
This study employs Ordinary Least Squares (OLS) estimation to analyze cross-sectional data, focusing on the relationship between adjusted net savings and various determinants, including GDP growth, GDP per capita, age, unemployment rate, consumer price index, human development index, and money supply The analysis also tests for specification errors such as autocorrelation, heteroskedasticity, and model stability at significance levels of 1%, 5%, and 10%.
To address the endogeneity issue between adjusted net savings and GDP growth, the model will be estimated using two-stage least squares (2TLS) estimation In this approach, the Ethno-Linguistic Fractionalization (ELF) index will serve as an instrumental variable for GDP growth or GDP per capita (GDPPC) This index helps mitigate the potential reverse causality where income growth influences adjusted net savings The ELF index is defined by the formula involving the number of individuals in each ethno-linguistic group, the total population, and the number of ethno-linguistic groups within the country.
The Ethno-Linguistic Fractionalization (ELF) index assesses the likelihood that two randomly chosen individuals from a country belong to the same ethno-linguistic group, with a higher ELF indicating greater national fragmentation Mauro's 1995 study revealed that corruption negatively impacts investment and, consequently, economic growth His findings were validated through robust testing that controlled for endogeneity by utilizing the ELF index as an instrumental variable.
Higher economic freedom levels (ELF) are associated with increased corruption, leading to weaker institutions, which negatively impacts economic growth This indicates a significant relationship between ELF and GDP growth.
This paper utilizes ELF as an instrumental variable to address endogeneity issues, operating under the assumption that ELF influences GDP growth without directly affecting adjusted net savings To validate this approach, a test for over-identifying instruments will be conducted, with the null hypothesis positing that the sole pathway through which ELF impacts adjusted net savings is via its effect on GDP growth.
Model 1: Faster growth of economics will lead to sustainable development ANSi=α0+α1GDPGRi+α2HDIi+α3MSi+α4XRi+α5AGEi+α6UBGRi+α7CPIi+εi (3-1)
Where i denotes for country i, ε is residual Null hypothesis H0: there is no relationship between adjusted net saving and average GDP growth in period 1996-2010
Alternative hypothesis Ha: there is a between adjusted net saving and average GDP growth in period 1996-2010
If α1>0: there is a positive relationship between adjusted net savings and GDP growth
If α10: there is a positive relationship between adjusted net savings and income per capita
If β10: there is a positive relationship between adjusted net savings and export of agricultural products
If γ10: there is a positive relationship between adjusted net savings and export of ores and metals
If δ10: there is a positive relationship between adjusted net savings and economic growth in developing countries
If α1