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

Emma Hooper (1, 2)

1 AMSE - Aix-Marseille Sciences Economiques
2 LABEX ReFi - Laboratory of Excellence for Financial Regulation

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.

Keywords: Exhaustible natural resources; Exogenous growth; Financial markets

Domains: Humanities and Social Sciences; Economics and Finance

Emma Hooper. Sustainable growth and financial markets in a natural resource-rich country. Structural Change and Economic Dynamics, 2019, 51, pp.341-348. ⟨10.1016/j.strueco.2018.11.007⟩. ⟨hal-02428952⟩