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Optimal dynamics in a two-sector model with natural resources and foreign direct investments

Angelo Antoci, Stefania Ragni and Paolo Russu

Applied Mathematics and Computation, 2016, vol. 273, issue C, 290-307

Abstract: In this paper we analyze the optimal dynamics in an economy with three factors of production which are labor, a renewable natural resource and physical capital, and two sectors, i.e. the industrial sector and the local sector. External investors invest in the industrial sector as long as the return on the invested capital is higher than in the other economies. The activity of the industrial sector generates a negative impact on the environmental resource. In this context, we show that external investments may generate path-dependent economic dynamics. More specifically, three stationary states may coexist, two saddle points and a repellor. Furthermore, the time evolution of the stock of the environmental resource is monotonic; that is, a U-shaped path (i.e. the environmental Kuznets curve) cannot be observed along which the stock is initially decreasing and then becomes definitively increasing.

Keywords: Foreign direct investment; Two-sector economic growth model; Environmental Kuznets curve; Optimal management of environmental resources; Optimal control problems (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.amc.2015.09.015

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