Economic growth and well-being: Examining Max-Neef’s “threshold hypothesis”

Abstract

This chapter reviews the so-called threshold hypothesis (namely, that there is a point after which economic growth may lead to a deterioration in the quality of life rather than its improvement), put forward by Max-Neef in a short article published in Ecological Economics in 1995. The article provided a novel reading of available evidence and ideas at the time, and had significant influence on the debate surrounding development indicators as well as the heterodox field of ecological economics. The paper did not contain a theoretical grounding of the hypothesis, and lack of subsequent developments reflect Max-Neef's usual preference for intuitive proposals over rigorous theorising. An effort is made here to show his previous research does contain the seeds of the underlying theory. Still, a foundation is needed if one is to properly assess the hypothesis. Empirically, the threshold has not aged well – at least is far from being as robust as Max-Neef thought it to be. However, it is argued that the data required to test the hypothesis is currently not available. Almost 20 years later, many gaps remain and further research is called for.