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Sustainable growth and financial markets in a natural resource-rich country

Abstract : This paper studies the optimal growth path of a natural resource-rich country, which can borrow from international financial markets. I explore to what extent international borrowing can overcome resource scarcity in a small open economy, in order to have sustainable growth. First, a benchmark model with a constant interest rate and technical progress is set up to see if the economy's growth can be sustainable in the long run. Secondly, the case of a debt elastic interest rate is analysed. The main finding of this paper is that borrowing on international capital markets does not permit sustainable growth for a country with exhaustible natural resources, when the interest rate is constant. Nevertheless, when the interest rate is endogenized, the consumption growth rate can be positive before declining.
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Emma Hooper. Sustainable growth and financial markets in a natural resource-rich country. Structural Change and Economic Dynamics, Elsevier, 2019, 51, pp.341-348. ⟨10.1016/j.strueco.2018.11.007⟩. ⟨hal-02428952⟩

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