Sustainable Growth and Secular Trends

Peretto, Pietro and Valente, Simone (2024): Sustainable Growth and Secular Trends.

Abstract

We fully characterize the transition to sustained growth of resource-constrained economies using a model of industrialization that reproduces key stylized facts of resource use and prices. Natural scarcity, endogenous demography and innovations generate different growth regimes: knowledge-based innovations can potentially feed productivity growth in the long run, but exhaustible primary inputs and population pressure may halt economic development at earlier stages. Our model reproduces two well-documented empirical regularities -- a U-shaped path of resource prices and a hump-shaped path of resource extraction -- as secular trends that arise across growth regimes. Resource use and prices reach their respective turning points at different stages of development, and we may observe a peak in extraction followed by a long period where both resource use and its market price fall. The decoupling of price and quantity dynamics hinges on general-equilibrium interactions between demography and three sources of endogenous technological change, namely, increases in the mass of intermediate firms, vertical innovations within each intermediate firm, and endogenous extraction costs affected by learning-by-doing in the primary sector.

• Item Type: MPRA Paper
• Language: English
• Keywords: Endogenous Growth, Population, Natural Resources, Sustainability.
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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