With Exhaustible Resources, Can A Developing Country Escape From The Poverty Trap?
AbstractThis paper studies the optimal growth of a developing non-renewable natural resource producer, which extracts the resource from its soil, and produces a single consumption good with man-made capital. Moreover, it can sell the extracted resource abroad and use the revenues to buy an imported good, which is a perfect substitute of the domestic consumption good. The domestic technology is convex-concave, so that the economy may be locked into a poverty trap. We study the optimal extraction and depletion of the exhaustible resource, and the optimal paths of accumulation of capital and of domestic consumption. We show that the extent to which the country will optimally escape from the poverty trap and the exhaustible resource will be a blessing depends on the characteristics of its technology and of the revenues from the resource function, on its impatience, on the level of its initial stock of capital, and on the abundance of the natural resource. If the marginal productivity of capital at the origin is greater than the sum of the social discount rate and the depreciation rate, the country will accumulate capital along the entire growth path, and will escape from the poverty trap, whatever its initial stocks of capital and resource, and provided that the marginal revenue obtained from the exportation of the resource is finite at the origin. On the contrary, if the marginal productivity of capital is lower than the depreciation rate whatever the level of capital, and if moreover the initial stock of capital is small, then the country will never accumulate; it will consume the revenues obtained from selling abroad the extracted resource, until there is no resource left and the economy collapses. We also show that any optimal path may be decentralized in a competitive equilibrium by using a tax/subsidy scheme for firms.
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Bibliographic InfoPaper provided by Development and Policies Research Center (DEPOCEN), Vietnam in its series Working Papers with number 15.
Length: 25 pages
Date of creation: Jul 2007
Date of revision:
Optimal growth; Exhaustible resource; Convex-concave technology; Poverty trap; Competitive equilibrium with tax/subsidy;
Other versions of this item:
- Le Van, Cuong & Schubert, Katheline & Nguyen, Tu Anh, 2010. "With exhaustible resources, can a developing country escape from the poverty trap?," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2435-2447, November.
- Cuong Le Van & Katheline Schubert & Tu Anh Nguyen, 2007. "With exhaustible resources, can a developing country escape from the poverty trap ?," Documents de travail du Centre d'Economie de la Sorbonne v07075, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Cuong Le Van & Katheline Schubert & Tu-Anh Nguyen, 2010. "With Exhaustible Resources, Can A Developing Country Escape From The Poverty Trap?," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00976399, HAL.
- Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-24 (All new papers)
- NEP-DEV-2007-11-24 (Development)
- NEP-ENE-2007-11-24 (Energy Economics)
- NEP-ENV-2007-11-24 (Environmental Economics)
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