Balancing environmental sustainability with economic development remains one of the defining challenges of the twenty-first century. For many developing nations, the dilemma is particularly acute: the urgent task of reducing poverty often collides with the accelerating degradation of natural ecosystems. A persistent belief holds that such countries must choose between prosperity and environmental protection, a dilemma complicated further by their dependence on foreign aid.
Although the United Nations Sustainable Development Goals (SDGs) outline a global vision for achieving progress on both fronts, what has long been missing is a robust theoretical framework to show how developing nations might practically reconcile these objectives. In particular, scholars and policymakers have lacked clear guidance on how international aid could be strategically deployed to foster both economic advancement and environmental responsibility.
A recent study, published online in The Singapore Economic Review on 6 August 2025, addresses precisely this gap. The research was led by Professor Hideo Noda from the Faculty of Business Administration at Tokyo University of Science (TUS), alongside co-author Ms. Fengqi Fang, a doctoral candidate at the Graduate School of Business Administration, TUS. Their work builds upon a 2021 study by Noda and Kano, which established that zero-emission policies can align with long-term growth in innovation-driven, developed economies. “The earlier model assumed advanced economies with knowledge-based systems already in place,” Prof. Noda notes. “Our goal was to extend this logic to developing countries where public finances depend heavily on official development assistance.”
To tackle this question, the team developed two contrasting economic growth models: the public goods model and the congestion model. The first assumes that public services—such as infrastructure, healthcare, or education—are universally accessible without competition. The second, more restrictive model recognises that as populations expand, the effectiveness of these services may diminish due to congestion effects. By comparing the two approaches, the researchers could test how different structural conditions shape the prospects for achieving both clean environments and expanding economies.
Through these models, the team investigated under what circumstances a government could implement a ‘zero-emissions policy’, meaning a framework that reduces net pollution to zero, while still sustaining economic growth. The simulations revealed that both models confirm the theoretical compatibility of zero-emissions policies with sustainable growth, even in aid-dependent economies. However, they identified a critical precondition: per-capita GDP must rise above a minimum threshold before such policies become viable. The researchers dubbed this benchmark the “kindergarten rule level of pollution abatement”—a nod to the basic childhood lesson that those who create a mess should clean it up themselves.
The precise level of this threshold is not uniform. Still, it varies with several factors: the extent of clean technologies available within the country, its demographic size, the volume of foreign aid received, and the proportion of that aid explicitly earmarked for environmental purposes. Interestingly, the models suggest that nations with more advanced clean technologies or larger populations can reach zero-emissions status at comparatively lower income levels. Moreover, the study demonstrates that well-designed tax policies can accelerate economic growth to the point where the income threshold is reached in a finite time. These insights were reinforced through numerical simulations grounded in real-world parameters.
The implications are significant. The findings highlight the catalytic role that foreign aid can play when channelled strategically into environmental programmes and clean-technology investments. For developing nations, this means that aid should be directed first and foremost toward cleaner production systems. For donor countries, the results underscore the value of dedicating a greater proportion of assistance to environmental and technological initiatives. In doing so, both donors and recipients can hasten the transition to a development pathway where prosperity and ecological responsibility are no longer viewed as incompatible, but as mutually reinforcing goals.
More information: Hideo Noda et al, Zero-emissions Policy and Sustainable Economic Growth in Developing Countries Receiving Foreign Aid, The Singapore Economic Review. DOI: 10.1142/S0217590825500304
Journal information: The Singapore Economic Review Provided by Tokyo University of Science