Sustainable Economic Growth Mechanism

Sustainable development is a great challenge in 21 century, it need to coordinate the movement of environment, economic and social systems, especially the conflict between growth and environment sustainability. Although aggressive environmentalist appeals to stop growth for environment, growth is still the most effective way to solve problems of population, inequity and unemployment for most countries. Therefore, how to achieve sustainable economic growth becomes to one of the most important issues today.Sustainable economic growth requires to keep a positive real saving rate and the stability of important environment function. Reducing the environment pressure by removing double market failure and double government failure is the basic approach to make a growth path to converge a sustainable growth path, which depends on the relative weight of technological effect, structural effect and scale effect, especially the technological effect.In recent years, many empirical researches have found that there is a inversed-U curve between income and environment pressure, which is referred to Environment Kuznets Curve. However, that doesn't mean growth path will converge to a sustainable path automatically. In addition to the data problem, the common model used in the regression is based on three assumptions; long-term equilibrium, homogeneity and steady trend. Tests for these three assumptions shows that this model is a wrong econometric model, and the EKC cannot be interpreted as growth will benefit environment sustainability. The observed inversed-U curve is own to the increasing scale economy of pollution abatement, and has no relation with the endogeneous change in economic growth. Analyzing firm's decision in green technological change supports this conclusion. In the market, firms make their technology adoption decision by comparing the cost and benefit. The uncertainty of benefit makes firms to delay adoption for gaining the second mover advantage, and the high complementary between new and old teclinologies decreases the diffusion efficiency. If this kind of double market failure cannot be removed, the growth path will not converge to the sustainable growth path.Policies aimed to promote the achievement of sustainable economic growth should be a policy package consisted of environment policy, technology policy and economic policy. The selection of policy instrument will depend on development stage and initial natural capital stock in a country. Policy selection for China sustainable economic growth is discussed.