Renewable resources in an endogenously growing economy: balanced growth and transitional dynamics

We introduce a renewable resource sector into an endogenous growth model of a small economy, deriving the transitional dynamic equilibrium. The model generates a long-run equilibrium in which a resource sector of limited size can coexist with constant ongoing growth elsewhere. The key feature of the model is the allocation of labor between harvesting the resource and its use in the final output sector. This naturally generates the empirically observed negative relationship between resource abundance and growth. We examine both the dynamic and long-run responses of the economy to various shocks pertaining to technological production conditions and resource sector parameters.