Transitional Dynamics in an R&D-based Growth Model with Natural Resources

URL des Documents de travail : http://centredeconomiesorbonne.univ-paris1.fr/documents-de-travail/Documents de travail du Centre d'Economie de la Sorbonne 2014.75 - ISSN : 1955-611XUpon introducing natural resources, both renewable and non-renewable, into an endogenous growth framework with R&D, this paper derives the transitional dynamics of an economy towards its long-run equilibrium. Using the Euler - Lagrange framework, this paper has succesfully figured out the optimal paths of the economy. It then shows the existence and uniqueness of a balanced growth path for each type of resources. The steady state is shown to be of a saddle point stability. Along the balanced growth path, it is found that a finite size resource sector coexists with other continuously growing sectors. The paper then examines long-run responses of the economy to various changes pertaining to innovative production condition, resource sector parameters as well as rate of time preference. It also shows that positive long-run growth will be sustained regardless the type of resources used

Transitional dynamics in an R&D-based growth model with natural resources

In this paper, we prove the existence and uniqueness of the optimal path for a resource endowed economy with R&D. This path converges to an optimal steady state, which is a saddle point, for each type of resources (renewable or non-renewable). In this steady state, a finite size resource sector coexists with other continuously growing sectors. In comparison, the corresponding decentralized equilibrium is suboptimal and there is either over- or under-investment in R&D from the social planner's perspective. At optimum, positive long-run growth will be sustained regardless type of resources used