Abstract In this paper a model is presented with the aim of studying the long-term relationship between an economy and its natural environment. The approach is based on two main elements: reciprocal interactions between on the one hand population growth, investment, allocation of inputs and outputs, technology and productivity, and on the other hand declining environmental quality, pollution and resource exhaustion; and a more realistic and consistent representation of the interdependence between various environmental effects, from extraction to emission, by using a materials balance perspective on economic processes. In order to develop the model attention is devoted to production functions that are consistent with materials balance. The model is multisectoral, including economic processes of extraction, production of commodities and investment goods, waste abatement and recycling. Environmental processes of resource regeneration and waste assimilation are linked through the economic and environmental sphere, and the model allows for endogenous development of resource-efficient technology.