Can Nonrenewable Resources Alleviate the Knife-Edge Character of Endogenous Growth
Can the knife-edge restriction on technology imposed by standard endogenous growth models be relaxed by allowing for nonrenewable resources entering the technology? To answer this question we examine whether stable endogenous growth is compatible with increasing returns to scale with respect to producible inputs when nonrenewable resources are a necessary input into the growth engine. In a one-sector optimal growth model, we find that the existence and stability of a steady state is compatible with a wide range of parameter values, including cases with increasing returns to capital and/or the natural resource. However, in all cases, population growth turns out to be necessary for stable growth in pr. capita consumption. Thus, under these circumstances, (strictly) endogenous stable growth is not possible, not even as a knife-edge case. But semi-endogenous growth is an attractive alternative allowing a rich set of determinants of long-run growth.
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