SDG 8 and the food-energy-water nexus: a two-country dynamic computable general equilibrium CGE model

In the twenty-first century, the success story of the Post-World-War-II World has been called into question by climate change and other challenges. De-growth or zero economic growth are discussed as possible solutions for mitigating climate change. The traditional economic growth model is increasingly challenged by the demand for sustained economic growth expressed in United Nations Sustainable Development Goal 8 "sustained economic growth" (UN-SDG 8) and supported by the European Green Deal. The aim of this paper is to contribute to the general understanding of characteristics, effects and challenges of new economic growth ideas as well as their interlinkages with the food-energy-water (FEW) nexus.

To address these challenges, a stylized dynamic General Equilibrium Model (GEM) was developed, which consists of two countries: an emerging, developing European country A and a developed European country B. Country A is assumed to grow, while country B shrinks. The model is based on artificial data sets. This approach was chosen to prevent the blurring of counterfactual comparison by country-specific effects of economic turbulences such as the Lehman crash or the economic break-in during the Covid-19 pandemic.

The gross output of the emerging European country increases, whereas the output of the developed European country decreases according to the different growth strategies. The analysis reveals that a constantly widening gap between the emerging and the developed country is created. It can further be shown how this influences the relevant economic indicators (CO₂ emissions, household budget, trade balance, utility and social welfare).

The analysis of the two-country stylized GE model makes distortions visible: insignificant gaps in the values and development of analyzed economic indicators become prevalent. The welfare gap affects the core of the traditional socio-economic system, because the development of the utility of the households is central for the stability of political processes. A sufficiency and subsistence sector may be an option to even out the welfare losses from the de-growth strategy of the traditional economic system to avoid that the de-growth gaps are perceived by the community as welfare losses which can endanger the realization of UN-SDG 8.