Can non-renewable resources alleviate the knife-edge character of endogenous growth?

Abstract

Standard endogenous growth models rely on the arbitrary assumption that the technology has exactly constant returns with respect to producible inputs. Can this knifeedge restriction be relaxed by including non-renewable resources as necessary inputs in production? In a one-sector optimal growth model, we find that the strain on the economy imposed by the need to extract successively smaller amounts of the nonrenewable resources can offset the potentially explosive effects of allowing for increasing returns to producible inputs. However, growth in per capita consumption will be unstable unless there is population growth. Thus, the knife-edge problem of (strictly) endogenous growth reappears as an instability problem. But a 'semi-endogenous' growth framework turns out to be an attractive alternative, relying on less restrictive parameter values, maintaining stability, and allowing a rich set of determinants of longrun growth.