Transitional Dynamics in an R&Dbased Growth Model with Natural Resources

Upon introducing natural resources, both renewable and non-renewable, into an endogenous growth framework with R&D, this paper derives the transitional dynamics of an economy towards its long-run equilibrium. Using the Euler - Lagrange framework, this paper has succesfully gured out the optimal paths of the economy. It then shows the existence and uniqueness of a balanced growth path for each type of resources. The steady state is shown to be of a saddle point stability. Along the bal- anced growth path, it is found that a nite size resource sector coexists with other continuously growing sectors. The paper then examines long- run responses of the economy to various changes pertaining to innovative production condition, resource sector parameters as well as rate of time preference. It also shows that positive long-run growth will be sustained regardless the type of resources used.