Growth with Endogenous Capital, Knowledge, and Renewable Resources

This paper proposes a dynamic economic model with endogenous technological change, physical capital and renewable resources. The model is a synthesis of the neoclassical growth theory, Arrow’s learning by doing, and some traditional dynamic models of renewable resources with an alternative approach to household behavior. The model describes a dynamic interdependence between technological change, physical accumulation, resource change, and division of labor under perfect competition. Because of its refined economic structure, the model analyzes some interactions between economic variables which are not found in the existing literature of economic growth. We simulate the model to demonstrate existence of equilibrium points and motion of the dynamic system. Our comparative dynamic analysis shows, for instance, that a rise in the capacity of the renewable resource increases the stock and reduces the price of the resource of the resource over time; the output levels of the two sectors, the total capital stock, and capital inputs of the two sectors are all increased; the labor distribution between the two sectors is slightly affected initially but is not affected in the long term; the rate of interest rises initially rise and is almost not affected in the long term; the per capita consumption levels of the good and the resource and the wage rate are increased.