Sustainable Development and Globalization in a World with Unequal Starting Points

Abstract

We develop a simulation model by integrating aspects of economics, demography, and environmental science. The model is used to explore the challenges of development for countries with different initial conditions (i.e., natural resource endowment, physical and human capital, technology, and population) in a world with movement of goods, people, and capital, free substitution in production, flexible economic structures, and the ability to upgrade input factors via investment. We find that the impact of globalization on various countries differs depending on their starting points. In general, capital flows (when accompanied by technology transfer) tend to benefit all countries, migration tends to benefit the destination countries (particularly the aging, rich) and the migrants themselves, and the benefits of trade can be either positive or negative depending on country endowments. A basic revelation of the explicit dynamics is that history matters, a finding that is often highly counter–intuitive from the point of view of conventional models.