Natural resource depletion, optimal economic growth and sustainable development

Potential conflicts between economic growth and environmental degradation are central to the sustainable development debate. In this paper, we extend the previous analysis by developing a four-sector model of endogenous growth with horizontal innovations and non-renewable resources. We focus on how increasing non-renewable resource depletion and degradation, and endogenous technological progress affect long-run economic growth. First, we study the optimum in the planned economy compatible with our model, and we derive the solutions of the optimal equilibrium and a sufficient condition under which the sustainable growth path is both feasible and optimal; more specifically, we perform some comparative statics exercises to analyze the effects of parameter variations arising from the economic environment on the steady-state growth rate, and the stability of the dynamic economic system is also studied. Finally, we present some concluding remarks and discuss their policy implications.