Resource Policy in an Endogenously Growing Economy

Lúðvík Elíasson

Economics from Department of Economics, Central bank of Iceland

Abstract: In a decentralized open economy model with an endogenous growth sector and a renewable resource sector a steady state-balanced growth equilibrium will at best be attained by chance. An interior equilibrium where both sectors exist and the resource sector is in equilibrium while the other sector grows can be achieved by the help of government policy. The optimum equilibrium is unstable in the decentralized economy and active government policy is needed to enforce it. Apparently contradicting policies may be needed to first move the economy to the optimal equilibrium and then to keep it there. In the current model the resource good is exported in exchange for a foreign consumption good. Hence a tariff on imports will have the same qualitative effects as a harvest fee.

Date: 2004-09
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Working Paper: Resources Policy in an Endogenously Growing Economy (2004)
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