Interactive dynamics between natural and man-made assets: The impact of external shocks

Abstract

This paper studies a two-sector economy in which one of the sectors (the “commodity sector”) depends in part on the exploitation of a renewable natural resource and examines the issue in an economy-wide context where both natural resources and a man-made asset change endogenously over time. We show that under an open access resource regime: i) a resource-rich, capital-poor economy may experience a “natural resource curse” phase and under certain conditions, may even follow a non-sustainable path leading to complete natural resource depletion; ii) a labor inflow results in a higher steady-state per capita income, with unchanged natural resources, though it makes the economy more prone to reach a path that converges to resource collapse; iii) the introduction of a small import tariff or export tax results in larger steady-state natural resources and commodity output and renders the economy less vulnerable to resource collapse. We also contrast the open access case with the other polar case of perfect property rights, showing that in this case the economy experiences neither a resource curse nor a resource collapse.