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Growth Constrained by Exhaustible Resources: A Creative Destruction Approach

Listed author(s):
  • Farhad Nili

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.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 00/22.

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Handle: RePEc:yor:yorken:00/22
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Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom

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