A Dynamic CGE Analysis of Exhaustible Resources: The Case of an Oil Exporting Developing Country

Extensive literature concerned with optimal depletion of an exhaustible resource, with only a few exceptions, ignores the economy-wide and sectoral distribution effects of resource depletion. This paper presents a dynamic computable general equilibrium model to link the underlying natural resource base to the economic performance. The model consists of an intra-temporal price endogenous multisectoral model of a market economy, embedded in an inter-temporal optimal growth and development model. This general equilibrium approach captures the economy-wide and sectoral distribution effects of resource depletion. The model is benchmarked for the Iranian data and is used to examine the issues related to optimal extraction of an exhaustible resource, optimal savings in the economy, and the allocation of investment funds.