Economic Growth, Sustainable Development, and the Millennium Development Goals (MDGs)

Economic growth is essential for sustainable development and improving

social outcomes.4 Growth usually—but not always—benefits the poor;

in about 90 percent of the cases in which countries have experienced per

capita GDP growth of at least 2 percent per year over a five-year period,

the poor also experienced rising real incomes. While, in general, there is

no pro-rich bias in growth,5 appropriate development of the poor’s

income-earning potential can help ensure that they also share in the fruits of an expanding economy (see the section on “Fiscal Policy, Human Development,

and the MDGs”). Not surprisingly, there is also a strong link

between economic growth and improvements in non-income dimensions

of poverty. For example, a 10 percent increase in GDP per capita typically

results in a 3–5 percent decrease in infant and child mortality rates.6 Similarly,

disparities between male and female literacy rates fall markedly as

GDP increases.7 In this light, fiscal policy can play a pivotal role in

achieving the MDGs by fostering robust economic growth.

Economic growth can support environmental sustainability and vice

versa. Growth can help the environment by increasing the resources available

for environmental improvement. For example, access to safe water

and sanitation has been steadily increasing with economic growth in East

Asia.8 However, the experiences of developed countries show that growth

is no panacea. Good policies and institutions are also important, not least

in relation to fiscal policy; recent studies show that they can significantly

reduce environmental degradation in low-income countries and speed up

improvements in high-income countries.9 Policy must also recognize that

important links run in the other direction as well; environmental quality

and sustainable resource use can affect economic growth.10 The morbidity

and mortality costs of air pollution, for instance, are substantial in many

parts of the developing world, with adverse consequences for economic


Fiscal Dimensions of Sustainable Development

Prepared for

World Summit on Sustainable Development

Johannesburg, August 26–September 4, 2002


The IMF is an international organization of 185 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. Since the IMF was established its purposes have remained unchanged but its operations—which involve surveillance, financial assistance, and technical...

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