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Property rights for natural resources and sustainable growth in a two-country trade model

Author

Listed:
  • F. Cabo

    ()

  • G. Martín-Herrán

    ()

  • M. Martínez-García

    ()

Abstract

We analyze a dynamic two-country trade model between a technological leading country and a technological follower economy. The output production in the follower economy needs a renewable natural resource as an essential input. We first prove that the innovation developed in the leading country guarantees sustainable growth in this economy. Moreover, trade of innovation also enables sustainability in the resource-dependent economy. We analyze different property rights regimes depending on whether the resource is managed by a central authority (a monopoly firm in the leading economy or the government in the follower country) or the exploitation rights are equally distributed among many harvesters in the follower country. The second main goal of the paper is to analyze how the ownership and distribution of the exploitation rights upon the natural resource may affect the sustainable growth rate for the two trading economies, the resource conservation and the consumers’ welfare. We obtain the standard result that the resource is better preserved when owned by a monopolistic agent (either a foreign firm or the government). When the property rights belong to a monopoly located in the leading country, the two economies grow faster than when they belong to either the government or many owners in the follower country. When the resource is monopoly-owned, consumers in the leading economy attain a higher welfare when the monopoly is located in this country, but the equivalent is not true for consumers in the follower economy. The comparison of welfares with the case of multiple owners is unclear. Copyright Springer-Verlag 2014

Suggested Citation

  • F. Cabo & G. Martín-Herrán & M. Martínez-García, 2014. "Property rights for natural resources and sustainable growth in a two-country trade model," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 99-123, April.
  • Handle: RePEc:spr:decfin:v:37:y:2014:i:1:p:99-123
    DOI: 10.1007/s10203-012-0135-5
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    References listed on IDEAS

    as
    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
    2. Erwin Bulte & Edward Barbier, 2005. "Trade and Renewable Resources in a Second Best World: An Overview," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 30(4), pages 423-463, April.
    3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    4. Birdyshaw, Edward & Ellis, Christopher, 2007. "Privatizing an open-access resource and environmental degradation," Ecological Economics, Elsevier, vol. 61(2-3), pages 469-477, March.
    5. Lopez, Ramon E. & Anriquez, Gustavo & Gulati, Sumeet, 2007. "Structural change and sustainable development," Journal of Environmental Economics and Management, Elsevier, vol. 53(3), pages 307-322, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Property rights; International trade; Renewable natural resources; Endogenous growth; Technological diffusion; C61; F18; O44;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • F18 - International Economics - - Trade - - - Trade and Environment
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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