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A NOTE ON THE STABILITY OF FULLY ENDOGENOUS GROWTH WITH INCREASING RETURNS AND EXHAUSTIBLE RESOURCES

Published online by Cambridge University Press:  08 April 2015

Francisco Cabo ,
Guiomar Martín-Herrán  and
María Pilar Martínez-García
Francisco Cabo
Affiliation:
IMUVA, Universidad de Valladolid
Guiomar Martín-Herrán*
Affiliation:
IMUVA, Universidad de Valladolid
María Pilar Martínez-García
Affiliation:
Universidad de Murcia
*
Address correspondence to: Guiomar Martín-Herrán, Dept. Economía Aplicada (Matemáticas), Avenida Valle Esgueva 6, 47011 Valladolid, Spain; e-mail: [email protected].
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Abstract

We analyze a general R&D-based endogenous growth model with a growth-essential natural resource. The economy comprises two separate sectors, final output and R&D, both directly or indirectly dependent on the natural resource. Because the resource is exhaustible and it is an essential productive input, increasing returns to scale to manmade inputs are compatible with nonexplosive sustained growth. The instability problem usually associated with increasing returns is overcome thanks to the existence of imperfect markets in a decentralized economy. We find an admissible range of values for the elasticity of capital in the R&D sector under which growth is fully endogenous and saddlepath stable, with no need of exogenous population growth.

Keywords

Nonrenewable Natural ResourcesSustained Economic GrowthR&D-Based Endogenous GrowthIncreasing Returns to ScaleSaddlepath Stability
Type
Notes
Information
Macroeconomic Dynamics , Volume 20 , Issue 3 , April 2016 , pp. 819 - 831
Copyright
Copyright © Cambridge University Press 2015 

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References

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