Does Sustainability Really Lower Economic Growth? In Search of Empirical Evidence from Tonga

At country level, sustainability is broadly defined as achieving economic growth without compromising the stock of natural and environmental assets. This definition triggered debates on the mutual impacts of sustainability and economic growth. On the one hand, some argue that sustainability requires environmental regulations, which can—in turn—inhibit economic growth. On the other hand, it is also noted, such regulations can trigger technological innovations leading to increased factor productivities and efficiencies and thereby promote economic growth. This book chapter raises a simple question for a Pacific Island nation—seriously threatened by the consequences of climate change—the Kingdom of Tonga: does sustainable development inevitably imply lower long-run economic growth and vice versa? This chapter seeks to assess if there is any evidence that sustainable development has impacted the economic growth of Tonga, which is a Small Island Development State (SIDS). In order to create a coherent framework of analysis, we structure our analysis in two related steps: first, we develop an overall indicator of sustainable development for Tonga. Secondly, we seek to establish—applying the time series analysis—if this sustainability indicator bears a long-term and equilibrium relationship with the economic growth and other variables for Tonga. Using the bounds F‐test for cointegration test yields evidence of a long-run relationship between the above-mentioned variables. Further, it is found that the impact of economic growth on sustainability is negative. That is higher the economic growth, lower will be the sustainability of the economy of Tonga.