Pollution from consumption and production is an inevitable part of economic processes. We employ a materials balance approach and develop an endogenous growth theory, with recycling activity, to examine the evolution of the economic and environment systems. This paper provides feasibility and optimality conditions for sustainable economic growth with rising environmental quality. The fundamental condition of feasibility is that the flow of natural resources, which eventually returns to the environment as waste and pollution, has a negative growth rate in the long run.
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