From that point of view, by using data of 90 countries, the author hopes to find out the relationship between sustainable development and other determinants such as GDP growth, export of
Research background
Economic growth directly impacts national wealth and income per capita by boosting Gross Domestic Product (GDP) and Gross National Income (GNI) Research on the relationship between economic growth, environmental sustainability, and societal well-being continues to attract global interest among economists Notably, some growth targets emphasize the sustainable use of natural resources and environmental protection, prioritizing future generations over short-term exploitation Many countries are now focusing on conserving scarce natural resources and reducing environmental degradation, shifting away from previous practices of resource over-exploitation.
Since its introduction in the 1987 Brundtland Report by the World Commission on Environment and Development, the concept of sustainable development has gained widespread popularity across countries Economists have explored the vital link between economic growth and sustainable development, highlighting their interconnected nature Research using indicators such as genuine saving rates and adjusted net savings demonstrates that sustainable development maintains a consistent and positive relationship with economic growth, emphasizing its importance for long-term prosperity.
Hamilton et al (1999) analyzed genuine saving rates across both developing and developed countries, considering factors such as gross savings, fixed capital investments, educational expenditures, and polluted emissions Their findings revealed that high-income countries generally exhibit positive genuine saving rates, while developing countries tend to have negative rates Negative genuine saving rates indicate a decline in overall well-being, highlighting sustainability concerns and the need for sound economic policies to promote long-term growth.
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
According to Atkinson et al (2003), there is a significant negative relationship between natural resource abundance and the growth rate of GDP per capita Their study highlights that higher levels of resource wealth may hinder economic growth, emphasizing the complex impact of natural resources on economic development This finding suggests that countries rich in natural resources might experience slower per capita income growth, underscoring the importance of effective resource management for sustainable economic progress.
Grace et al (2004) examined the genuine savings of Taiwan and the United Kingdom, representing an industrialized country in Europe and an Asian developing nation Their study revealed that the United Kingdom's low annual GDP growth rate is associated with a correspondingly low genuine saving ratio to GDP, highlighting the link between economic growth and savings sustainability.
A 2007 study by Dietz et al revealed that wealthy resource-dependent countries tend to have lower genuine saving rates compared to poorer resource-rich nations The research highlights that improving institutional quality can mitigate these negative effects, leading to higher genuine savings in resource-dependent economies.
Economic growth plays a significant role in determining a nation's genuine saving rate, with higher growth typically leading to increased savings Additionally, factors such as institutional quality and resource abundance influence genuine saving rates at various levels Generally, developed countries tend to have higher genuine saving rates compared to developing countries, primarily due to their stronger economic performance and better institutional frameworks.
Statement of problem
Vietnam's economic growth surged impressively following the implementation of the "Doi Moi" policy in 1986, which marked a shift towards greater market openness and international cooperation Over the decades, Vietnam has become one of the fastest-growing economies in Asia, with an average growth rate of around 7.07% from 1996 to 2010, creating opportunities to improve living standards However, despite these advancements, Vietnam remained one of the poorest countries globally by 2010, with a per capita income of only $723 US, highlighting the ongoing challenges in translating economic growth into widespread prosperity.
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 average annual GDP growth rate of 5.87%, reaching a GDP per capita of US$32,641 in 2010, reflecting its status as a high-income country In contrast, the Netherlands had a slower average annual GDP growth of 2.2%, with a GDP per capita of US$26,553 in 2010, also categorizing it as a high-income nation Meanwhile, Vietnam falls into the low-middle-income group, highlighting a common global phenomenon where countries with higher economic growth rates may still have lower income per capita This raises an important question: is there a paradox in economic growth and development, where rapid growth does not necessarily equate to higher average income levels?
Sustainable development, also known as genuine savings, offers a novel perspective for assessing a country's growth quality and overall wealth This approach builds upon gross saving and incorporates additional factors such as fixed capital, education, environmental health, and natural resources, making it more comprehensive and meaningful than traditional economic indicators Since 1996, the World Bank has adopted this measure to better evaluate long-term economic sustainability and the true wealth of nations.
“adjusted net saving” in World Development Indicators It also presents in the Little Green Data Book from 2000
This article explores the complex relationship between economic growth and various aspects of life, including society, environment, and natural resources It highlights the need to consider the impact of current consumption patterns on future generations, emphasizing the importance of sustainable development Particularly in Vietnam, research on how economic growth influences environmental sustainability and social well-being remains limited, underscoring the urgency for more studies to ensure balanced and responsible development.
Research objectives
This article examines the influence of economic growth and additional factors on sustainable development, with a specific focus on Vietnam Utilizing data from 90 countries sourced from the World Bank between 1996 and 2010, the study highlights the critical relationship between economic progress and sustainability The analysis emphasizes how economic growth impacts sustainable development outcomes in Vietnam, providing valuable insights for policymakers aiming to achieve balanced and inclusive growth.
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
From these above objectives, this paper will find answers to these 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
This paper utilizes both qualitative and quantitative methods, including Ordinary Least Squares (OLS) estimation, to assess the impact of economic growth, specifically GDP growth, on sustainable development Building on empirical studies from previous research, the study formulates hypotheses and tests their validity using advanced econometric techniques To address potential endogeneity issues between sustainable development and GDP growth, the paper applies Two-Stage Least Squares (TSLS) estimation, which helps determine whether reverse causation exists between these variables Ultimately, the analysis aims to answer whether higher adjusted net savings lead to increased GDP growth, providing insights into the relationship between savings and economic performance within the context of sustainable development.
Structure of thesis
This thesis comprises six chapters, beginning with an introduction to the background of the research and the importance of economic growth and sustainable development within the Vietnamese context It reviews existing literature on economic growth, development, and sustainability, including empirical studies conducted in recent decades The methodology chapter details data collection, analysis techniques, and econometric methods used for research The results chapter presents findings from hypothesis testing related to the proposed models Finally, the thesis concludes with an assessment of sustainable development status and key points from relevant global agendas These sections ensure a comprehensive understanding of the interplay between economic progress and sustainability in Vietnam.
This article concludes with a comprehensive summary of the main findings related to the topic in Vietnam, highlighting key insights It also discusses existing policies that are currently in place, offering suggestions for potential improvements Additionally, the conclusion acknowledges the limitations of this research, paving the way for future studies Finally, it proposes several opportunities for further exploration to deepen understanding and inform policy development.
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)
Traditionally, economists have not clearly distinguished between economic growth and economic development, recognizing that while economic growth is necessary, it is not sufficient for true development GDP remains a limited metric for measuring economic welfare, as it overlooks important factors such as leisure time, access to health and education, environmental sustainability, freedom, and social justice Emphasizing these broader aspects provides a more comprehensive understanding of a nation's overall progress and well-being.
Economic growth typically refers to an increase in a country's production or income per capita, whereas economic development encompasses a broader scope, including structural and social changes According to E Wayne from Kansas State University, economic development involves not only growth in output but also improvements in the distribution of wealth and overall economic structure He emphasizes that progress is reflected in the enhanced material well-being of the poorer population, a decline in agriculture's share of GNI, and the rise of industry and services within GNP Additionally, economic development is characterized by increased education and skills among the workforce, as well as significant technical advances originating domestically.
8 E Wayne Nafziger, Economic Development, fourth edition, Cambridge University Press, 2006
Economic development refers to the qualitative transformation of a country's economy driven by technological and social progress A key indicator of this development is the growth of GNP per capita or GDP per capita, which measures improvements in economic productivity and enhances the average 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 used to assess a nation's development, such as the Human Development Index (HDI) for measuring human progress and the GINI index for evaluating income inequality The choice of indexes depends on the specific development approaches and factors being analyzed These metrics provide comprehensive insights into a country's social and economic advancements, guiding policymakers and stakeholders in making informed decisions Combining multiple indexes offers a holistic view of national development and highlights areas needing attention.
The United Nations Development Program (UNDP) annually assesses a nation's development using the Human Development Index (HDI) This comprehensive metric evaluates human progress by integrating key factors such as income levels, life expectancy, and educational attainment The HDI serves as a vital tool for understanding and comparing overall development across countries worldwide.
The GINI index is a key metric that measures income inequality within a nation by comparing the income distribution between the wealthy and the total population It highlights issues related to economic inequality both domestically and internationally Notably, income disparity persists even in highly developed countries, emphasizing that economic inequality is a widespread challenge globally.
Sustainable development has been defined in various ways over time According to the United Nations Brundtland Report by the World Commission on Environment and Development in 1987, it is fundamentally about balancing current needs with the future The report emphasizes that sustainable development "meets the needs of the present without compromising the ability of future generations to meet their own needs," highlighting the importance of responsible resource management for long-term well-being.
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 is fundamentally defined as ensuring non-declining utility, as outlined by Pezzey (1992), which remains a core concept in the field Building on this foundation, Pearce and Atkinson (1997) introduced a new paradigm that emphasizes strong sustainability, advocating for the preservation of natural capital to support long-term ecological and economic stability.
The OECD defines sustainable development as a development path that maximizes human well-being for present generations without compromising the ability of future generations to meet their own needs.
According to the United Nations (2008), sustainable development aims to prevent the decline of a nation's wealth over time It emphasizes that a country's growth depends on various capital stocks, including fixed capital, human capital, social capital, and natural capital, which must be replenished to maintain long-term prosperity The UN group proposed a concise set of indicators for international comparison, highlighting the challenges in precisely defining and measuring sustainability due to its complex nature.
Approaches of sustainable development
Sustaining economic growth hinges on two key possibilities First, limited substitutability between reproducible capital and nonrenewable resources allows growth to continue even as nonrenewable resource stocks decline Second, technological advancements can facilitate a transition from dependence on non-renewable resources to alternative sources, ultimately leading to the adoption of renewable resources for long-term sustainability.
Sustainability can be understood through two main paradigms: the ecological approach and the neoclassical approach, often referred to as strong and weak sustainability Weak sustainability suggests that natural and produced capital can be substituted for each other, allowing one to be depleted as long as the other is maintained In contrast, strong sustainability emphasizes the importance of preserving natural capital separately, highlighting the irreplaceable value of ecological systems The key debate revolves around the degree to which natural capital can be substituted by human-made capital without compromising environmental integrity, shaping policies and strategies for sustainable development.
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 encompasses vital natural resources like coal, oil, forests, and land, while reproduced capital refers to human-made assets such as human capital Reproducible capital can partially substitute natural resources, reducing society's reliance on finite resources by enhancing the value and sustainability of services derived from both renewable and non-renewable stocks This interplay between natural and human-made capital underscores their importance in promoting sustainable development and resource management.
Weak sustainability emphasizes the importance of high substitutability between reproducible and natural capital, allowing human-made capital to replace natural resources Under this approach, increasing the value of artificial capital leads to an overall growth in the total capital stock over time This perspective suggests that maintaining total capital is key to sustainable development, even if natural capital decreases, as long as it is compensated by an increase in reproducible assets.
Strong sustainability emphasizes the importance of substitutability between natural and manufactured capital, highlighting that maintaining future economic opportunities requires managing the depletion of natural resources Ensuring sustainable development involves setting conditions to prevent the over-exploitation of natural capital, guaranteeing long-term prosperity.
2.2.1 Weak sustainability: the neoclassical paradigm
Weak sustainability is a concept of development that ensures resources are not depleted from one generation to the next, emphasizing the importance of maintaining overall welfare over time Originating from economic theories rather than ecological principles, it imposes constraints on growth to prevent future generations from experiencing reduced well-being According to Pezzey (1992), weak sustainability is defined by non-declining welfare, highlighting the focus on sustaining economic prosperity across generations This approach underscores the significance of balancing economic development with resource conservation to achieve sustainable growth.
In the case of reduction of welfare, he called it as “survivability”
Building on the concept of unlimited substitution between man-made and natural capital, Pearce and Atkinson (1997), referencing Pezzey’s definition of sustainable development, proposed a formula to measure sustainability This approach emphasizes the importance of balancing economic growth with environmental preservation, ensuring that natural resources are preserved for future generations Their model provides a framework for evaluating sustainable development through quantifiable indicators that integrate ecological limits with economic performance This formula aims to guide policymakers in fostering development that is both economically viable and environmentally responsible, aligned with the principles of long-term sustainability.
The formula incorporates key indicators of sustainable development, with Z representing the overall sustainability index It considers depreciation rates of both man-made capital (DM/Y) and natural capital (DN/Y), highlighting the importance of maintaining these resources over time The variables DM and DN measure the total depreciation of man-made and natural capital, respectively, while S denotes national savings, and S/Y reflects the saving rate Together, these components provide a comprehensive assessment of a country's ability to balance economic growth with resource conservation.
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 achieved when the value of Z is less than or equal to zero, indicating that higher saving rates help offset depreciation of both natural and human-made capital Conversely, if Z is greater than zero, sustainable development is weak or unlikely, as insufficient savings hinder the maintenance and growth of essential capital Therefore, maintaining adequate saving rates is crucial for ensuring long-term sustainability and balanced development.
2.2.3 Strong sustainability: the ecological paradigm
Strong sustainability emphasizes limited substitution between man-made and natural capital, highlighting the importance of conserving critical natural resources Herman Daly and John Cobb (1999) advocate for this approach due to the catastrophic consequences of natural resource depletion, especially when those resources are vital for production They argue that in some processes, natural capital is indispensable, and its substitutability diminishes as stocks are depleted Additionally, they highlight that the elasticity of substitution between natural and reproducible capital is zero because of the unique and irreplaceable nature of certain natural assets Therefore, maintaining stocks of critical natural capital is essential, regardless of opportunity costs, to ensure sustainable development.
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 indicator of resource scarcity, as they fail to account for intergenerational interests and long-term sustainability Technological advancements over time tend to reduce future prices, reflecting increased efficiency and innovation However, the ecological perspective often remains pessimistic about relying on technological change alone to address environmental challenges, emphasizing the need for proactive ecological solutions.
Objectives and significance of sustainable development
The 1992 Earth Summit at the United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro marked a pivotal moment in global environmental policy During this summit, the international community adopted Agenda 21, a comprehensive blueprint aimed at integrating environmental, economic, and social concerns into unified sustainable development strategies Agenda 21 includes detailed recommendations and proposals tailored for nations worldwide to address pressing environmental issues and promote global sustainability.
In "For the Common Good" (1999), Daly Herman and John Cobb emphasize the importance of reducing wasteful consumption patterns, alleviating poverty, and protecting air, oceans, and biodiversity They also advocate for the development of sustainable agriculture to promote long-term environmental health and social well-being.
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
2.4.1 Adjusted net savings or genuine savings
Pearce et al (1997) and Hamilton et al (1999) developed a innovative indicator for assessing sustainable development by estimating the costs required to restore the environment to its initial state, aligning with United Nations guidelines from 1993 This indicator is calculated as the sum of net investments in produced assets and the changes in natural resource stocks and pollutant levels, providing a comprehensive measure of environmental sustainability This approach offers valuable insights into the economic costs of environmental degradation and restoration efforts, aiding policymakers in sustainable development planning.
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
Their studies primarily analyzed natural resource depletion and carbon dioxide emissions from 1970 to 1993, revealing that many countries experienced negative rates of genuine savings However, the traditional method overlooked the role of human capital, which is crucial for sustainable development To address this, they incorporated educational expenditure as a form of value added in genuine savings calculations Using this revised approach, they defined genuine savings as a measure that better reflects the true investment in a country’s future, especially for developing nations.
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, this indicator has become a key proxy for measuring sustainable development worldwide A study by Hamilton et al (1999) demonstrated that adjusted net savings are positive in high-income countries, indicating sustainable growth In contrast, developing countries often exhibit negative adjusted net savings, which can lead to a decline in overall well-being and long-term economic health.
2.4.2 Index of Sustainable Economic Welfare or ISEW
Daly et al (1999) introduced the Index of Sustainable Economic Welfare (ISEW) to measure the relationship between economic welfare and environmental depletion This innovative index differentiates between pollution (water, air, noise), land loss (wetlands, farmland), and long-term environmental sustainability by comparing conventional national income accounts while accounting for environmental damages and natural resource depletion The ISEW has been widely adopted in numerous studies, including those by Lawn (2003) and Clarke (2005), highlighting its importance in sustainable development assessments.
2.4.3 Genuine Process Indicators or GPI
The Genuine Process Indicator (GPI), a version of the Index of Sustainable Economic Welfare (ISEW), offers an alternative measure of sustainable development beyond traditional indicators like GDP It assesses economic progress by adjusting GDP values to account for factors such as income distribution, depletion of social and natural capital, and the environmental and social costs of mobility and pollution (Hamilton C., 1999; Robert et al.).
2.4.4 Environmental Sustainability Index or ESI
Yale University analyzed data from 140 countries using the World Bank's Environmental Sustainability Index (ESI) 2005, a comprehensive measure of national environmental stewardship The ESI is based on 21 indicators that assess air and water pollution, biodiversity, and ecosystem health Core to the index are measures of environmental carrying capacity and eco-efficiency, which reflect a society’s sustainable use of natural resources Importantly, environmental conditions can only improve if societies modify their production and consumption patterns (Lee et al., 2005), emphasizing the need for systemic change to achieve true sustainability.
The pollution category comprises two key indicators: Air Quality (SYS_AIR) and Water Quality (SYS_WQL), essential for assessing environmental health The eco-efficiency category encompasses nine vital indicators, including Biodiversity (SYS_BIO), Land use (SYS_LAN), and efforts to Reduce Air Pollution (STR_AIR), Reduce Ecosystem Stress (STR_ECO), and decrease Waste and Consumption Pressures (STR_WAS) It also focuses on reducing Water Stress (STR_WAT), managing natural resources (STR_NRM), enhancing Energy Efficiency (CAP_EFF), and lowering Greenhouse Gas Emissions (GLO_GHG), providing a comprehensive overview of sustainable environmental practices.
2.4.5 Inclusive wealth index or IWI
Dasgupta (2007) proposed measuring sustainable development through the concept of inclusive wealth, emphasizing that an economy experiences sustainability only if its inclusive investment, relative to its population, is non-negative He described inclusive wealth as the shadow value of a country's productive base, with inclusive investment representing the shadow value of the net change in that productive base Additionally, Dasgupta integrated various indicators—such as the Human Development Index, total fertility rate, literacy rates, governance quality, life expectancy, under-5 mortality, and rural population—into a comprehensive assessment of economic performance and sustainability.
Linkage of various determinants of sustainable development
Economic growth is typically measured by increases in Gross Domestic Product (GDP) or Gross National Income (GNI), while economic development is often assessed using the Human Development Index (HDI), which considers income, education, and life expectancy Sustainable development encompasses a broader scope than mere economic growth or development, integrating economic, environmental, and social factors to ensure balanced progress According to Harris et al (2001), sustainable development should emphasize three key activities: economic growth, environmental protection, and social inclusion, highlighting the interconnected nature of these components for long-term well-being.
Economic activities drive national growth by increasing income, creating jobs, and enhancing competitiveness in global trade Simultaneously, environmental activities play a crucial role in conserving natural resources, maintaining biodiversity, and ensuring atmospheric stability These efforts help reduce CO2 emissions, control polluted wastewater, and promote sustainable use of both renewable and nonrenewable resources, supporting long-term economic and environmental balance.
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 is achieved when a nation successfully balances economic, social, and environmental activities simultaneously It acts as a bridge linking economic factors such as income and welfare, social aspects like education expenditure, healthcare, and gender equity, and environmental considerations including pollution control and natural resource conservation While the concept has certain limitations, it remains the only comprehensive framework that encompasses the most critical aspects 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 vital concept because it integrates physical, human, and natural capitals, providing a comprehensive view of a nation's progress It serves as an advanced development indicator that highlights environmental concerns, such as natural resource depletion, air pollution, and the impact on future generations Unlike traditional national accounts, it emphasizes that current consumption should balance economic growth with environmental preservation The more we consume today, the greater the depletion of natural resources and the challenge for future generations to meet their needs.
Hamilton et al (1999) established a link between sustainable development and a nation's income levels They found that high-income countries typically have a positive genuine saving rate, indicating healthy economic sustainability In contrast, developing countries often experience a negative genuine saving rate, which can lead to declining well-being and hinder long-term growth Ensuring positive genuine savings is crucial for supporting sustainable development and enhancing overall quality of life globally.
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) highlight that this indicator offers a broader definition of wealth beyond traditional national accounts, capturing the net change in a wide range of assets crucial for sustainable development.
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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
Relating to determinants of the adjusted net savings in developing countries, Peter Hess
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Peter Hess (2010) examines the determinants of the adjusted net saving rate in developing economies, highlighting that economic activity often occurs within the informal sector The formalization of the economy serves as an indicator of financial deepening, measured by the ratio of money supply to national income, which differentiates developing countries from their developed counterparts.
The adjusted net saving rate is significantly influenced by natural resources, as income generated from the export of fuels, ores, and metals contributes directly to a nation's savings Consequently, the depletion of these natural resources leads to a decrease in adjusted net savings, highlighting the importance of sustainable resource management for maintaining long-term economic stability.
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)
Gross national saving rates significantly impact a nation's economy by contributing to government revenues and public savings through export income from natural resources Key determinants used to estimate a country's gross saving rate include factors such as resource export earnings, overall economic performance, and savings behavior within the population Understanding these factors is essential for assessing a nation's financial health and planning sustainable growth strategies.
SY =f ' (HDI, GYP, APL, FIN, XR) (2-4)
ASY= adjusted net saving rate for 2000-2006
HDI=Human Development Index for 2000
GYP=average growth rate of real GDP per capita
APL= average share of population of ages 15-64 for 2000 and 2006
FIN=ratio of liquid liabilities to GDP in 2000
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 FDY = foreign direct investment as a share of GDP in 2000
Hess identified key determinants of economic development, including the Human Development Index (HDI), the percentage of the population in prime labor force age, the share of natural resources in exports, and measures of financial development, while economic growth itself was not a significant explanatory variable Additionally, gross national savings, changes in the share of the population aged 15 to 64, and the economic growth rate were found to be significant factors influencing economic progress.
This study employs a reduced form equation to estimate economic growth, assuming that savings directly translate into investment and using adjusted net saving as a proxy for net capital formation While adjusted net saving partially captures human capital development and natural resource depletion, it provides a comprehensive indicator for assessing economic progress Key determinants included in the model are the Human Development Index (HDI), Average Price Level (APL), real growth rate of exports of goods and services, Foreign Direct Investment (FDI), and FDI's share in national output These factors collectively contribute to a robust understanding of the drivers shaping economic growth.
GYP=g( ASY OR GRS, HDI, APL, GX FDY) (2-5)
The analysis indicates that the savings rate does not have a statistically significant impact on the average annual growth rate of real GDP per capita Conversely, APL and GX are identified as statistically significant variables influencing growth, whereas HDI and FDY do not serve as meaningful explanatory factors in the model.
Dietz et al (2007) examined the interaction between resource abundance and institutional quality, focusing on indicators such as lack of corruption, efficient bureaucracy, and the rule of law Building on Atkinson and Hamilton (2003), who identified a positive relationship between resource abundance, institutional quality, and gross investment and savings, they explored whether the negative impact of resource wealth on genuine savings is driven by policy failures The study developed a model that explains genuine savings by considering the interplay between natural resource endowment and institutional strengths.
This study analyzed data from 115 countries over 18 years, highlighting that factors such as per capita income, economic growth, age dependency, and urbanization significantly influence gross and adjusted net savings rates The researchers estimated two models to examine these relationships, with key determinants including income levels, economic growth, demographic shifts, urbanization, institutional quality, and resource security The main model for gross saving rates is specified as: 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, reflecting the combined effects of economic and demographic factors.
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
Research from 1793 to 1807 highlights how factors such as age, urbanization, investment, and resource rent influence economic sustainability Generally, resource-rich countries tend to have lower genuine savings compared to poorer resource-dependent nations, partly due to institutional failures that hinder savings levels Importantly, corruption exacerbates this issue, but reducing corruption can mitigate the negative impact of resource abundance on genuine savings, promoting better economic stability and development.
Based on the key findings of Hess (2010) and Grace et al (2004), various models have been developed to analyze the relationship between economic growth and adjusted net savings, considering important determinants such as GDP growth rate (GDPGR), GDP per capita (GDPPC), Human Development Index (HDI), median age (MS AGE), unemployment growth rate (UBGR), and Consumer Price Index (CPI) These models help understand how these factors influence sustainable economic development by assessing their impact on net savings and overall economic performance Incorporating these indicators in the models enhances accuracy in predicting economic trends and informs policymakers on strategies to promote balanced growth.
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)
Recent studies by Dietz et al (2007) and Atkinson et al (2003) reveal a negative relationship between adjusted net savings and natural resources To explore this further, I developed two new models examining the impact of exporting raw agricultural products and ores and metals, highlighting the significant influence of resource exports on economic sustainability.
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 measures true saving rates by accounting for investments in human capital, such as education expenditure It also considers the depletion of natural resources, including energy, minerals, and forests, and the environmental damages caused by pollution, like carbon dioxide emissions and particulate matter By providing a comprehensive view of sustainable savings, ANS helps evaluate the long-term economic and environmental health of a nation.
GDP growth (GDPGR) measures the annual percentage increase in a country's gross domestic product at market prices, calculated in constant local currency, with aggregates based on 2000 U.S dollars GDP represents the total gross value added by all resident producers combined with any product taxes, minus subsidies not included in product values It is calculated without deducting depreciation of manufactured assets or accounting for the depletion and degradation of natural resources, providing a comprehensive view of economic growth.
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
HDI=Human Development Index for 2000
GYP=average growth rate of real GDP per capita
APL= average share of population of ages 15-64 for 2000 and 2006
CPL = average annual change in the share of the population of ages 15–64 for 2000 to
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 resource exports, accounting for 64%, and measures of financial development are key factors influencing economic outcomes However, economic growth itself does not serve as a significant explanatory variable Instead, variables such as gross national savings, changes in the population aged 15 to 64, and the economic growth rate play crucial roles as significant determinants of economic performance.
Yacouba Gnegnè (2009) found that estimating the simultaneous model for economic growth and adjusted net saving yielded unjustified results His analysis revealed that both savings-adjusted net saving and gross saving are statistically insignificant in influencing the average growth rate of real GDP per capita This suggests that neither adjusted net saving nor gross saving significantly impact economic growth, highlighting the need for further research into other determinants of GDP per capita growth.
Yacouba (2009) examined whether adjusted net savings (ANS) can explain changes in welfare from 1971 to 2000 across 36 developing and developed countries Using proxies such as the Human Development Index (HDI) and Infant Mortality Rate (IMR) to measure welfare, he included Gross National Income (GNI) as a control variable and used NNS as the main regressor His analysis with a fixed effects model revealed that both adjusted net savings and welfare are positively related, although the effect size is weak, indicating a significant but modest impact of savings on welfare improvements.
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 resource-rich countries tend to have lower genuine saving rates compared to poorer resource-dependent nations Institutional failure, including corruption, further depresses genuine savings, hindering economic growth However, the adverse impact of resource abundance on genuine savings diminishes as corruption levels decrease, highlighting the importance of good governance for sustainable saving practices.
This study examines the impact of economic growth on the environment in Pakistan from 1971 to 2005, analyzing key factors such as GDP per capita, carbon dioxide emissions, energy consumption, population, and urbanization Using a VAR model and ADF test, the research identifies a long-term positive relationship between economic growth and carbon dioxide emissions The findings suggest that Pakistan’s economic development is energy-intensive, which significantly contributes to increased carbon dioxide emissions and environmental degradation.
This study explores the conceptual and empirical aspects of genuine saving, highlighting its significance for sustainable economic policy Based on the World Bank’s formula for genuine savings, the analysis evaluates how this measure reflects a country's true investment in its future, considering factors such as natural resource depletion and capital formation The findings underscore the policy implications of genuine savings as a vital indicator for promoting sustainable development and guiding resource management strategies.
GENSAV= (GDS-Dp+EDU-Rn,j-CO2damage)/GDP (2-18)
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 World Bank's ESI 2005 index, revealing that factors such as GDP per capita, land resources, and civil and political liberties significantly influence environmental sustainability It found that environmental sustainability tends to improve with higher income per capita, decreasing population, and greater civil and political freedoms The ESI is a composite profile based on 21 indicators measuring air and water pollution, biodiversity, and ecosystem health, all reflective of a nation's environmental stewardship Fundamental aspects of environmental sustainability relate to carrying capacity and eco-efficiency, which cannot change without shifts in societal production and consumption patterns Despite some overlap between pollution measures and eco-efficiency indicators, no direct relationship exists between these factors, indicating that societal change is essential for meaningful environmental progress.
This study analyzes the genuine savings of the United Kingdom and Taiwan from 1970 to 1998 using time series data, employing robustness and sensitivity analyses to ensure accuracy The calculations are based on the World Bank formula, with adjustments made to account for environmental costs by deducting air and water pollution expenses These findings highlight the importance of considering environmental degradation when assessing sustainable development in both countries.
Genuine Savings, also known as Adjusted Net Saving, is calculated by subtracting the Consumption of Fixed Capital (Depreciation) from Gross Domestic Savings It is further adjusted by adding Education Expenditure and deducting the costs associated with air pollution, water pollution, CO2 damage, and nonrenewable natural resource depletion This comprehensive measure provides a more accurate assessment of a nation's sustainable economic growth by accounting for environmental and human capital investments.
(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
This study analyzed data from 91 countries between 1980 and 1995, focusing on variables such as genuine savings, GDP (1980 and 1995), education, and investment, using cross-sectional econometrics The findings reveal a negative and significant relationship supporting the resource curse hypothesis, indicating that poor management of large resource revenues by governments contributes to economic stagnation Moreover, the study suggests that countries experiencing sluggish growth tend to have a combination of natural resource dependence, inadequate macroeconomic policies, and low genuine savings rates, which collectively hinder sustainable development.
Using data from the 1970s, 1980s, and 1990s provided by the World Bank, researchers calculated each country's genuine saving rate by analyzing gross domestic investment, net foreign borrowing, gross saving, depreciation, and net saving This comprehensive calculation offers valuable insights into a nation's true savings performance over these decades.
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 shows that the genuine saving rate in high-income countries is positive, indicating sustainable economic growth, whereas in developing countries, this rate is negative, signaling declining well-being A negative genuine saving rate suggests that these nations are depleting their capital, which ultimately hampers long-term development and reduces overall quality of life Ensuring a positive genuine saving rate is essential for fostering sustainable progress and improving living standards worldwide.
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 methodology to estimate the impact of economic growth on sustainable development It involves analyzing the relationship between GDP growth and adjusted net savings, controlling for variables such as HDI, MS, AGE, UBGR, and CPI, with ELF85 serving as an instrumental variable Additionally, the same approach is applied to assess how exports of raw agricultural products, ores, and metals influence sustainable development, as well as evaluating the effect of economic growth on sustainability in developing countries.
Chapter remarks
This chapter focus on theoretical literature with definitions of economic growth,
Control variables HDI, MS, AGE, UBGR, CPI
Export -Raw agricultural products AGRI
Instrumental variables and the ELF85 development model are essential tools for evaluating the impacts of economic growth on sustainable development Numerous studies have demonstrated a consistent relationship between economic growth and sustainable development across both developed and developing countries Higher economic growth rates are often associated with progress in sustainability, though various factors such as natural resources, institutional quality, age dependency ratios, urbanization, and human investments significantly influence this relationship Understanding these dynamics is crucial for formulating effective policies that promote sustainable development alongside economic growth.
Econometric techniques
This study estimates models using cross-sectional data through Ordinary Least Squares (OLS) estimation, a widely used technique for analyzing relationships between variables The models examine key determinants such as GDP growth, GDP per capita (GDPPC), age, unemployment rate (UBGR), Consumer Price Index (CPI), Human Development Index (HDI), and money supply (MS) in relation to adjusted net savings Additionally, all model specifications are rigorously tested for common issues like autocorrelation, heteroskedasticity, and stability, with significance levels set at 1%, 5%, and 10% to ensure robust and reliable results.
To address the endogeneity problem between adjusted net savings and GDP growth, the model will be estimated using two-stage least squares (2SLS) estimation An environmental load factor (ELF) will serve as an instrumental variable for GDP growth or GDP per capita, mitigating concerns of reverse causality where income growth influences savings ELF captures the environmental pressure associated with economic activities, ensuring a more accurate estimation of the causal relationship The ELF index is defined based on demographic and ethno-linguistic data, where ni is the number of people in the ith group, N is the total population, and I is the total number of ethno-linguistic groups within the country.
The Ethno-Linguistic Fractionalization (ELF) index measures the likelihood that two randomly selected individuals from a country belong to the same ethnic or linguistic group, with higher values indicating greater country fragmentation According to Mauro (1995), higher ELF scores are associated with increased corruption, which diminishes investment and hampers economic growth His study employed robust testing methods, including the use of the ELF index as an instrumental variable to address endogeneity concerns, and confirmed that greater ethnic and linguistic diversity negatively impacts economic development through increased corruption.
According to Dimitrios Asteriou and Stephen G Hall in "Applied Econometrics: A Modern Approach," higher levels of ELF (Environmental, Social, and Governance Factors) are associated with increased corruption, which indicates weaker institutions Poor institutional quality resulting from elevated ELF correlates negatively with GDP growth, highlighting a significant relationship between ELF and economic development Therefore, enhancing institutional integrity is crucial for fostering sustainable economic growth.
This study employs ELF (Environmental Level of Fluorocarbons) as an instrumental variable to address endogeneity concerns in analyzing GDP growth The key assumption is that ELF influences GDP growth without directly impacting adjusted net savings An over-identification test is conducted to verify this assumption, with the null hypothesis stating that ELF affects adjusted net savings solely through its impact on GDP growth This approach enhances the robustness of the causal inference between ELF, GDP growth, and net savings.
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