Resource scarcity, technological progress, and stochastic growth

Abstract

Will shortages of natural resources constrain economic growth? The answer seems yes, as the amount of natural resources on earth is finite. There can, however, be two excuses for this. First, the resource-saving technological progress might undo resource scarcity. Second, at the country level, countries can import resources from other countries. This paper revisits these two excuses. For technology, not all technological progress is resource-saving, and its arrival is unpredictable. For the import argument, at the global level, the world cannot make up for a shortage of natural resources by importing. Moreover, the amount of resources is difficult to forecast. To address these, I construct the open, stochastic two-sector endogenous growth model with exhaustible resources. I then analytically show that the answer is sensitive to the interaction between technology and resource shocks. In some cases, I find that higher resource uncertainty accelerates the expected growth and improves the welfare of agents.