Non-renewable resources and growth, the case of the oil: a simple endogenous model

Fabbri, Giorgio (2007): Non-renewable resources and growth, the case of the oil: a simple endogenous model.

Abstract

We present a growth model in which a non-renewable resource enters in the production function. The non-renewable resource is supposed to be sold by an external monopolistic that maximizes his intertemporal discounted cash flow. This approach allows to endogenize the price of the resource. We use the historical data of the oil price and of the oil production to calibrate the model. The forecasts of the model about the evolution of the GDP growth rate, the price and amount of the production of the oil are described. The formulation of the model is quite easy but it hallows to obtain a good fit with the recent data and especially with the behavior of the three main quantities considered (oil price, oil supply and GDP growth rate) in the last years. Indeed the recent data suggest a new scenario and probably a progressive reduction of the world oil supply (and an indefinite growth of the prices). The model suggests that such a behavior is not due to the imminent physical end of the oil but has a clear economic explanation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Non-renewable resources, Oil, Endogenous Growth
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q31 - Demand and Supply ; Prices; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

H. Aage. Economic arguments on the su ciency of natural resources. Cambridge Journal of Economics, 8(1):105, 1984.

K. Arrow, P. Dasgupta, L. Goulder, G. Daily, P. Ehrlich, G. Heal, S. Levin, K.G. Maler, S. Schneider, D. Starrett, et al. Are We Consuming Too Much? The Journal of Economic Perspectives, 18(3):147 172, 2004.

C.J. Campbell and J.H. Laherrere. The end of cheap oil. Scientific American, 278(3):60 5, 1998.

BR Copeland and MS Taylor. Trade, Growth, and the Environment. Journal of Economic Literature, 42(1):7 71, 2004.

P. Dasgupta and G.M. Heal. Economic theory and exhaustible resources. Cambridge Economic Handbooks. Cambridge Press, 1980.

Energy Information Administration (EIA). World production of crude oil, ngpl, and other liquids, and refinery processing gain, most recent annual estimates, 1980-2006, August 24, 2007.

Energy Information Administration (EIA). Month data, real imported crude oil price, October 09, 2007.

Energy Information Administration (EIA). Quarterly oil supply. October 11, 2007.

International Monetary Fund (IMF). World economic outlook 2007: Spillovers and cycles in the global economy, April 2007.

T. Mitra. On Optimal Depletion of Exhaustible Resources: Existence and Characterization Results. Econometrica, 48(6):1431 1450, 1980.

E. Neumayer. Scarce or Abundant? The Economics of Natural Resource Availability. Journal of Economic Surveys, 14(3):307 335, 2000.

R.M. Solow. Intergenerational Equity and Exhaustible Resources. The Review of Economic Studies, 41:29 45, 1974.

J. Stiglitz. Growth with exhaustible natural resources: E cient and optimal growth paths. The Review of Economic Studies, 41:123 137, 1974.

J. Stiglitz. Growth with exhaustible natural resources: The competitive economy. The Review of Economic Studies, 41:139 152, 1974.