With exhaustible resources, can a developing country escape from the poverty trap?

This paper studies the optimal growth of a developing non-renewable natural resource producer. It extracts the resource from its soil, and produces a single consumption good with man-made capital. Moreover, it can sell the extracted resource abroad and use the revenues to buy an imported good, which is a perfect substitute of the domestic consumption good. The domestic technology is convex-concave, so that the economy may be locked into a poverty trap. We study the optimal extraction and depletion of the exhaustible resource, and the optimal paths of accumulation of capital and of domestic consumption. We show that the extent to which the country will escape from the poverty trap depends, besides the interactions between its technology and its impatience, on the characteristics of the resource revenue ∗ E-mail: [email protected], [email protected], [email protected] †Corresponding author. The authors thank the participants at the GED Seminar of Centre d’Economie de la Sorbonne (CES), and at the SURED 2008 (Monte Verita Conference on Sustainable Resource Use and Economic Dynamics). In particular, they are grateful to Antoine d’Autume, Pierre Lasserre, Thomas Seegmuller and Bertrand Wigniolle for their comments and questions which obliged them to revise and, by the way, improve their paper.