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Sustainable Growth and Financial Markets in a Natural Resource Rich Country

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  • Emma Hooper

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

We study the optimal growth path of a natural resource rich country, which can borrow from international financial markets. More precisely, we explore to what extent international borrowing can overcome resource scarcity in a small open economy, in order to have sustainable growth. First, this paper presents a benchmark model with a constant interest rate. We then introduce techni-cal progress to see if the economy's growth can be sustainable in the long-run. Secondly, we analyse the case of a debt elastic interest rate, with a constant price of natural resources and then with increasing prices. The main finding of this paper is that borrowing on international capital markets does not permit sustainable growth for a country with exhaustible natural resources, when the interest rate is constant. Nevertheless, when we endogenize the interest rate the consumption growth rate can be positive before declining.

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  • Emma Hooper, 2015. "Sustainable Growth and Financial Markets in a Natural Resource Rich Country," Working Papers halshs-01119420, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01119420
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01119420
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    References listed on IDEAS

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