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Growth Constrained by Exhaustible Resources: A Creative Destruction Approach

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  • Farhad Nili

Abstract

This paper is about how the constraints imposed by natural resource scarcity affects economic growth and its sustainability. We extend the creative destruction model of Aghion and Howitt(1998, ch.5) to study its transitional dynamics. This extension allows us to describe the dynamics of the economy on the stable saddle path and its rate of convergence toward the steady state. Moreover we show situation in which even in the presence of sustainability condition, suggested by Aghion and Howitt, it is optimal for consumption to display negative growth rate on the transition path for a finite period. The conditions for uniqueness of the steady state are also defined. Under plausible assumptions the closed forms of the fundamentals of the model in the steady state is determined. We study the stability of the model around the steady state and analyse the nonlinear system of differential equations, describing the dynamics of the economy, by numerical methods.

Suggested Citation

  • Farhad Nili, "undated". "Growth Constrained by Exhaustible Resources: A Creative Destruction Approach," Discussion Papers 00/22, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:00/22
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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/2000/0022.pdf
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    Keywords

    endogenous growth; exhaustible resources; optimal growth; steady state; transitional dynamics.;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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