Chapter 12 - Sustainable Growth in a North-South Trade Model

Abstract

This chapter analyzes sustainable growth in a north–south trade model. The South specializes in a resource intensive good while the North specializes in a capital-intensive good. The North–South trade and the management of natural resources are modeled in a dynamic way so that sustainable economic growth can be analyzed. Balanced paths exist that allow a sustained growth in the North and a permanent growth of consumption in the South without exhausting Southern natural resources. On a balanced path, physical capital, technological knowledge, consumption and the price of the intermediate natural good, grow at the same constant rate, while the supply and demand of the intermediate good remain constant. The stocks of the two resources are not necessarily constant. For some balanced paths, only one of the two resources is harvested, allowing the other to reach its carrying capacity. For other balanced paths, the total exploitation effort interchanges from one resource to the other, although this will not happen continuously. It is found that restrictions in the use of the intermediate natural good will not necessarily slow down the growth rate of consumption in the South.