Exhaustible Resources, Monopolistic Competition, and Endogenous Growth

Abstract

One of the central analytical findings of the growth literature is that continuous growth is possible even in an economy with exhaustible resources. Based on this result, this paper addresses the question of whether different equilibrium trajectories which lead to a balanced growth path are possible within an endogenous growth model with incomplete competition. Although the Solow-Stiglitz condition is violated due to a monopolistic sector, we nevertheless demonstrate that steady growth in per capita consumption is possible under the condition that the rate of entry of new monopolists exceeds that of the average monopolist's decline in output. As a necessary but not sufficient condition for indeterminacies in a growing economy, this paper demonstrates that the partial production elasticity of capital must be smaller than that of the exhaustible resource.