Gross Domestic Product and External Costs:The Case of Sustainable Management in Serbia

This paper defines a complicated calculation model of sustainable development. Social welfare can be expressed quantitatively by GDP growth. The empirical data on changes in Serbian GDP growth in the period: 2002-2011, served as a base values on which the assumed correction of external costs was applied. For our analysis we used numerical simulation approach. Our results show that variable GDP has the sixth-degree polynomial form with the empirical Serbian data in observed period. Consequently, the results show the viability of the economic and ecological development in the framework of our assumptions. We defined the external costs or social costs of externalities as "the costs of nature", and they are structured so that they make the sum of losses of the environment due to exploitation of non renewable resources, pollution and the necessary investments for the elimination of pollution costs. Additionally, the paper presents utility function that includes both market and non-market assets, or consumption of these assets by an individual