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With exhaustible resources, can a developing country escape from the poverty trap ?

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  • Cuong Le Van

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Katheline Schubert

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Tu-Anh Nguyen

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

Abstract

This 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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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00203180.

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Date of creation: Jul 2007
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Handle: RePEc:hal:cesptp:halshs-00203180

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Keywords: Optimal growth; exhaustible resource; convex-concave technology; poverty trap; competitive equilibrium with tax/subsidy.;

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  1. Lúdvík Elíasson & Stephen J. Turnovsky, 2002. "Renewable Resources In An Endogenously Growing Economy: Balanced Growth And Transitional Dynamics," Economics, Department of Economics, Central bank of Iceland wp20_ludvik, Department of Economics, Central bank of Iceland.
  2. LE VAN, Cuong & SAGLAM, H. Cagri, . "Optimal growth models and the Lagrange multiplier," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1748, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Askenazy, Philippe & Le Van, 1997. "A model of optimal growth strategy," CEPREMAP Working Papers (Couverture Orange) 9707, CEPREMAP.
  4. Costas Aariadis & John Stachurski, 2004. "Poverty Traps," Department of Economics - Working Papers Series, The University of Melbourne 913, The University of Melbourne.
  5. Dana, Rose-Anne & Le Van, Cuong, 2003. "Dynamic Programming in Economics," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/416, Paris Dauphine University.
  6. Dechert, W. Davis & Nishimura, Kazuo, 1983. "A complete characterization of optimal growth paths in an aggregated model with a non-concave production function," Journal of Economic Theory, Elsevier, Elsevier, vol. 31(2), pages 332-354, December.
  7. Rodriguez, Francisco & Sachs, Jeffrey D, 1999. " Why Do Resource-Abundant Economies Grow More Slowly?," Journal of Economic Growth, Springer, Springer, vol. 4(3), pages 277-303, September.
  8. Dana, Rose-Anne & Le Van, Cuong, 2003. "Dynamic Programming in Economics," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/13605, Paris Dauphine University.
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Cited by:
  1. repec:ipg:wpaper:2 is not listed on IDEAS
  2. Bayramoglu, Basak & Jacques, Jean-François, 2009. "Environmental big push," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/5551, Paris Dauphine University.
  3. Nguyen Than Dao & Ottmar Edenhofer, 2014. "On the Fiscal Strategies of Escaping Poverty-Environment Traps (and) Towards Sustainable Growth," CESifo Working Paper Series 4865, CESifo Group Munich.
  4. Antoine Bommier & Lucas Bretschger & François Le Grand, 2014. "Existence of Equilibria in Exhaustible Resource Markets with Economies of Scale and Inventories," CER-ETH Economics working paper series, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich 14/203, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  5. Alain Ayong Le Kama & Thai Ha-Huy & Coung Le Van & Katheline Schubert, 2013. "A Never-decisive and Anonymous Criterion for Optimal Growth Models," Working Papers, Department of Research, Ipag Business School 2013-002, Department of Research, Ipag Business School.
  6. repec:hal:journl:halshs-00275758 is not listed on IDEAS

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