Renewable resources in an endogenously growing economy : balanced growth and transitional dynamics

Abstract

We introduce a renewable resource sector into an endogenous growth model of a small economy, deriving the transitional dynamic equilibrium. The model generates a long-run balanced growth path along which a resource sector of limited size can coexist with constant ongoing growth elsewhere. The key feature of the model is the allocation of labor between harvesting the resource and its use in the final output sector. We examine both the dynamic and long-run responses of the economy to various shocks pertaining to technological production conditions and resource sector parameters and show how they can generate sharply contrasting transitional adjustment paths.