Long-term economic growth under environmental pressure: An optimal path

•We present a model of long-term economic growth under environmental pressure.•We construct an optimal long-term growth model under environmental pressure.•We indicate the optimal long-term growth path and reason why divergence occurs.•Economic diversification can increase real output and promote long-term growth.•Economic collapse can be avoided along the optimal long-term growth path.

This paper presents a model, based on the advance-retreat course (ARC) model (Dai et al., 2013a and Dai et al., 2013b), of long-term economic growth under environmental pressure. The model is used to explain economic convergence and divergence; construct an optimal long-term growth model for basic, emerging and real total output; derive an optimal growth accounting equation; indicate the optimal paths of long-term growth and economic structure change; analyze empirically the growth for U.S. and China. Among the findings are that emerging industries contribute significantly to real output in the long term; that economic diversification can increase real output and promote long-term growth. The paper suggests policy orientations that are needed to avoid economic collapse.