Natural Resources and Economic Growth

This paper develops a one-sector endogenous growth model in which renewable natural resources are postulated as both a factor of production and as a measure of environmental quality. We show that sustained economic growth and a non-deteriorating environment can coexist along the economy’s balanced growth path. Moreover, the output growth rate is positively related to the steady-state level of natural-resource utilization in production. Motivated by this theoretical prediction, we estimate a panel cross-country growth regression model that includes a broad measure of productive natural resources – the Ecological Footprint – as one of the conditioning variables, and find strong empirical support. Our estimation results also suggest that the costs of environmental conservation are fairly minimal, and that growth strategies based on greater physical capital formation and openness to international trade outperform those relying on more intensive utilization of the environment.