Natural capital and the theory of economic growth

Abstract

During the past half century, theorizing about economic growth has forced economists to reconsider and revise the capital concept a number of times. This paper explores the analytical relationship between capital accumulation and economic growth, on the one hand, and the natural world, on the other. Section 1 sketches modern growth theory with an emphasis on whether or not the economy is seen as facing biophysical ‘limits to growth.’ Section 2 argues that analysis of the role that ‘natural capital’ plays in the production process must occur before one can assess the prospects for economic growth. Section 3 inserts natural capital into a simple growth model and discusses the implications that (1) depletion of natural capital, (2) complementarity in production of natural and social forms of capital and (3) accumulation of technical knowledge have for the growth process.