CeFiMS Discussion Papers www.cefims.ac.uk Genuine Dissaving and Optimal Growth

Measuring sustainability is a major goal for applied research on economic development. This paper studies the theoretical founda-tions of empirical methods used in recent literature to test sustain-ability, with particular focus on the theory of green accounting and the genuine saving indicator. The rationale for this empirical method is that non-negative genuine savings at any point in time imply non-decreasing utility at that time. This ’instantaneous ’ condition is nec-essary but not sufficient for sustainability: an additional ’asymptotic’ condition is also necessary for non-decreasing long-run utility, i.e. the consumption rate of return must be at least equal to the social dis-count rate. As a consequence, the asymptotic condition should be incorporated in empirical analysis, in order to test sustainability in a forward-looking manner. This paper presents an empirical test of the asymptotic condition using time-series data for the United States