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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number v07075.
Length: 26 pages
Date of creation: Jul 2007
Date of revision:
Contact details of provider:
Postal: 106-112 boulevard de l'Hôpital 75 647 PARIS CEDEX 13
Phone: + 33 44 07 81 00
Fax: + 33 1 44 07 83 01
Web page: http://centredeconomiesorbonne.univ-paris1.fr/
More information through EDIRC
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?," Working Papers 15, Development and Policies Research Center (DEPOCEN), Vietnam.
- 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-00470655, HAL.
- Cuong Le Van & Katheline Schubert & Tu-Anh Nguyen, 2007. "With exhaustible resources, can a developing country escape from the poverty trap ?," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00203180, 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-2008-01-12 (All new papers)
- NEP-DGE-2008-01-12 (Dynamic General Equilibrium)
- NEP-ENE-2008-01-12 (Energy Economics)
- NEP-ENV-2008-01-12 (Environmental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Askenazy, P. & Le Van, C., 1997.
"A Model of Optimal Growth Strategy,"
DELTA Working Papers
97-27, DELTA (Ecole normale supérieure).
- Eliasson, Ludvik & Turnovsky, Stephen J., 2004.
"Renewable resources in an endogenously growing economy: balanced growth and transitional dynamics,"
Journal of Environmental Economics and Management,
Elsevier, vol. 48(3), pages 1018-1049, November.
- Lúdvík Elíasson & Stephen J. Turnovsky, 2002. "Renewable Resources In An Endogenously Growing Economy: Balanced Growth And Transitional Dynamics," Economics wp20_ludvik, Department of Economics, Central bank of Iceland.
- 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, vol. 31(2), pages 332-354, December.
- Dana, Rose-Anne & Le Van, Cuong, 2003. "Dynamic Programming in Economics," Economics Papers from University Paris Dauphine 123456789/416, Paris Dauphine University.
- Azariadis, Costas & Stachurski, John, 2005.
Handbook of Economic Growth,
in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 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 2, Department of Research, Ipag Business School.
- repec:ner:dauphi:urn:hdl:123456789/5551 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lucie Label).
If references are entirely missing, you can add them using this form.