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


  • Cuong Le Van

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

  • Katheline Schubert

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

  • Tu-Anh Nguyen

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)


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.

Suggested Citation

  • Cuong Le Van & Katheline Schubert & Tu-Anh Nguyen, 2007. "With exhaustible resources, can a developing country escape from the poverty trap?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00203180, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00203180
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    References listed on IDEAS

    1. 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.
    2. repec:dau:papers:123456789/13605 is not listed on IDEAS
    3. 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.
    4. Askenazy, Philippe & Le Van, Cuong, 1999. "A Model of Optimal Growth Strategy," Journal of Economic Theory, Elsevier, vol. 85(1), pages 24-51, March.
    5. Azariadis, Costas & Stachurski, John, 2005. "Poverty Traps," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 5 Elsevier.
    6. repec:dau:papers:123456789/416 is not listed on IDEAS
    7. Rodriguez, Francisco & Sachs, Jeffrey D, 1999. "Why Do Resource-Abundant Economies Grow More Slowly?," Journal of Economic Growth, Springer, vol. 4(3), pages 277-303, September.
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    Cited by:

    1. repec:ipg:wpaper:2 is not listed on IDEAS
    2. repec:eee:eecrev:v:99:y:2017:i:c:p:170-190 is not listed on IDEAS
    3. repec:hal:journl:halshs-00275758 is not listed on IDEAS
    4. Antoine Bommier & Lucas Bretschger & François Grand, 2017. "Existence of equilibria in exhaustible resource markets with economies of scale and inventories," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(3), pages 687-721, March.
    5. Alain Ayong Le Kama & Thai Ha-Huy & Cuong Le Van & Katheline Schubert, 2014. "A never-decisive and anonymous criterion for optimal growth models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 281-306, February.
    6. 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.
    7. repec:ipg:wpaper:2013-002 is not listed on IDEAS
    8. Bretschger, Lucas & Schaefer, Andreas, 2017. "Dirty history versus clean expectations: Can energy policies provide momentum for growth?," European Economic Review, Elsevier, vol. 99(C), pages 170-190.
    9. Ken-Ichi Akao & Takashi Kamihigashi & Kazuo Nishimura, 2015. "Critical Capital Stock in a Continuous-Time Growth Model with a Convex-Concave Production Function," Discussion Paper Series DP2015-39, Research Institute for Economics & Business Administration, Kobe University.
    10. repec:dau:papers:123456789/5551 is not listed on IDEAS

    More about this item


    competitive equilibrium with tax/subsidy; poverty trap; competitive equilibrium with tax/subsidy.; exhaustible resource; convex-concave technology; Optimal growth; trappe à pauvreté; ressource épuisable; technologie convexe-concave; Croissance optimale; équilibre concurrentiel avec taxes/subventions.;

    JEL classification:

    • 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


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