An Integrated Biophysical and Economic Modeling Framework for Long-Term Sustainability Analysis

Abstract

This paper derives a long-term dynamic growth model that endogenously links biophysical and economic variables in a stock-flow consistent manner. The two industrial sector model enables exploration of interdependencies among resource extraction rate, the accumulation of population, capital, and debt, and the distribution of money flows within the economy. Using a post-Keynesian economic framework, we find that wage share declines after the model reaches its peak per capita resource extraction rate, with the level of investment and markup on costs determining the rate of decline. We show that this pattern is consistent with data for the United States. Further, the distribution of intermediate transactions within the model follows the same temporal pattern as in the post- World War II U.S. economy indicating that this framework enables realistic investigation of trade-offs between economic distribution, size, and resources consumption. It serves as a platform upon which to add features to explore long-term sustainability questions such as a transition to low-carbon energy.