Welfare-oriented economies outperform market-driven peers in OECD green growth race

A new analysis reveals that welfare-oriented economies in the OECD are outperforming market-driven peers in advancing sustainable development. The study, titled “Top OECD Performers in Green Growth – An FOI Model Analysis” and published in Entrepreneurship in the Raw Materials Sector (CRC Press, Taylor & Francis, 2022), examines how 38 member countries balance economic growth with environmental protection. Using the Future–Outside–Inside (FOI) model, the research identifies clear differences between countries’ development strategies and highlights those achieving notable success in green growth.

The findings offer a fresh perspective on global sustainability efforts, underscoring that economic structure and regulatory traditions play a decisive role in environmental progress. With climate change at the forefront of international agendas, the study’s insights point to actionable lessons for policymakers seeking to foster sustainable, long-term economic growth.

Green growth patterns across OECD countries

The research aimed to determine whether a distinct green growth pattern is emerging among OECD nations and to identify the countries performing best in this domain. The FOI model evaluated three pillars: Future potential, reflecting long-term competitiveness and environmental progress; Outside potential, measuring global market integration; and Inside potential, assessing factors that support current social and economic well-being.

By analyzing 95 socio-economic variables from 2019–2020, sourced from international databases such as OECD.Stat, the IMF, and the World Bank, the study mapped development paths and conducted cluster analysis to group countries by their FOI indices. A dedicated Green Growth Factor, drawn from indicators such as renewable energy adoption, CO₂ productivity, and the proportion of emissions priced above €30 per ton, was linked to the Future potential dimension.

The findings revealed significant variations in green growth performance even among advanced economies. Countries in the Welfare-Participatory cluster, including Austria, Denmark, Finland, Germany, Ireland, Israel, New Zealand, Norway, and Sweden, consistently led in combining economic growth with environmental sustainability. Two outlier nations, Iceland and Luxembourg, also ranked among the top performers, with Norway, Iceland, and Luxembourg achieving the highest Green Growth Factor scores. In contrast, countries in the Market-Oriented cluster, such as the United States, Canada, the United Kingdom, and Australia, while strong in global competitiveness and investment readiness, trailed in green growth outcomes.

Role of development models in driving sustainability

Welfare-oriented and statist economic models appear more effective at fostering green growth than market-driven ones. According to The author’s analysis, countries with strong welfare traditions benefit from established regulatory frameworks, social investment practices, and policy stability that support the shift to renewable energy and low-carbon development.

The research highlights that environmental regulation plays a pivotal role in shaping green growth outcomes. Previous work by Wang et al. (2019) indicated that stricter environmental regulations often correlate with better performance in green productivity growth, although the relationship may plateau or even reverse beyond a certain threshold due to compliance costs. The FOI-based findings suggest that welfare-oriented countries, with their emphasis on inclusive development and governance, manage to leverage regulatory mechanisms to maintain momentum in sustainable development.

The cluster analysis further underscores the distinction. Market-Oriented economies excel in short-term investment readiness and economic integration but lag in long-term environmental progress. By contrast, Welfare-Participatory economies demonstrate higher scores in the Future potential dimension, reflecting their stronger capacity to integrate green policies with innovation, education, and social well-being. These findings reinforce the idea that sustainable growth depends on a broader policy mix that balances economic efficiency with environmental and social priorities.

Policy lessons and future directions

For policymakers in lower-performing countries, the study provides a roadmap for aligning economic competitiveness with environmental responsibility. It emphasizes the need to strengthen environmental regulations, enhance human capital investment, and expand renewable energy infrastructure. The success of top performers such as Norway, Iceland, and Luxembourg highlights that coordinated policies, backed by strong governance and long-term planning, can enable countries to decouple economic growth from environmental degradation.

The research also points to critical areas for future improvement in assessing and implementing green growth strategies. The current Green Growth Factor, derived from four key variables, provides a useful benchmark but may not capture the full complexity of the transition to sustainable economies. Expanding the range of indicators, such as energy efficiency, biodiversity preservation, and sustainable consumption practices, would offer a more comprehensive picture.

Moreover, the study highlights challenges in data availability and comparability. Some countries, like Switzerland, could not be fully assessed due to missing data points, despite likely strong performance. Similarly, the United Kingdom ranked seventh in the Green Growth Factor but was placed in a lower-scoring cluster because of its broader FOI profile. Addressing such data gaps through better international coordination could improve the reliability of cross-country comparisons and inform more targeted policy actions.

The author suggests that case studies of high-performing nations could yield deeper insights into effective policy design. Such research could illuminate how institutional arrangements, innovation policies, and social investments converge to drive sustainable development in practice.