Balancing environmental conservation with economic progress is one of the most pressing challenges of our time. This is particularly difficult for many developing countries, which urgently need to lift their populations out of poverty while grappling with the increasing degradation of their environment. Unfortunately, a common belief is that these nations have to choose between economic growth and a clean environment—a situation made more complex by their reliance on foreign aid.
While the United Nations Sustainable Development Goals provide a global roadmap for tackling such issues, a theoretical understanding of how developing countries can actually achieve these goals is missing. Specifically, there's no robust theoretical framework to analyze how foreign aid can be strategically leveraged to simultaneously achieve economic progress and environmental sustainability.
Now, a recent study published online in the journal The Singapore Economic Review on August 06, 2025, provides this much-needed framework. The research was led by Professor Hideo Noda of the Faculty of Business Administration, Department of Business Economics at Tokyo University of Science (TUS), Japan, and co-authored by Ms. Fengqi Fang, a PhD candidate in Business Administration from the Graduate School of Business Administration at TUS. "This work is related to a 2021 study by Noda and Kano, who demonstrated that zero-emissions policies and sustainable economic growth are theoretically compatible. However, their model assumed developed countries with mature, innovation-driven, knowledge-based economies," explains Prof. Noda. "Therefore, the motivation for our study was to prove that zero-emissions policies and sustainable economic growth are compatible even in developing countries that rely on official development assistance for a significant portion of their government revenue." Thus, this study is positioned as a continuation of the study by Noda and Kano (2021).
To explore this complex problem, the researchers constructed two types of economic growth models: a public goods model and a congestion model. The public goods model assumes that government services like infrastructure or education are freely available to everyone without competition. In contrast, the congestion model takes into account how an increase in a country's population can reduce the effectiveness of public services.
These two models allowed the researchers to analyze and simulate different economic scenarios in developing nations. Their goal was to understand the conditions under which a government could successfully implement a 'zero-emissions policy'—a policy that reduces net pollution emissions to zero. The study also examined if such a policy could be compatible with sustained economic growth. The researchers then compared the results from both models to see how the presence of congestion in public services might affect a country's ability to achieve these goals.
Overall, the study's findings are optimistic and offer a clear path forward. Both models suggest that a zero-emissions policy and sustainable economic growth are compatible in developing countries receiving foreign aid. However, this requires a developing country's gross domestic product per person to surpass a specific minimum threshold to successfully implement the zero-emissions policy. The researchers called this threshold the 'kindergarten rule level of pollution abatement,' referencing a basic principle commonly taught in kindergarten: "if you make a mess, clean it up yourself."
This important threshold depends on several factors, including the level of clean technology available in the country, population size, the amount of foreign aid received, and how much of that aid is specifically designated for environmental protection. Interestingly, the research shows that countries with better clean technology or larger populations can achieve zero emissions at lower income levels. Notably, the mathematical models revealed that when governments set effective tax policies to boost economic growth, countries can reach the necessary income threshold in finite time. The researchers verified this via numerical simulations, using real-world parameters.
The findings underscore the importance of foreign aid as a catalyst for the transformations needed and suggest ways to accelerate these processes. For example, receiving countries should prioritize using foreign aid to invest in cleaner production technology, whereas donor countries could allocate a larger portion of their aid specifically to environmental programs and clean-tech development.
"Our research will help people in developing countries who believe that it is difficult to achieve both environmental conservation and economic growth," concludes Prof. Noda. "I hope this will be an opportunity to change the mindset of such people."
