Endogenous growth and natural resource scarcity

Endogenous growth theory has rekindled interest in the role of innovation i n determining long-term economic growth. Generally, this body of literature has ignored the contribution of natural resources to growth or the role of innovation in overcoming resource scarcities. The latter problem has been a focus of resource economics for many years, but innovation is usually mod elled as exogenous rather than endogenous technological change. Recent inve stigations in political economy have additionally suggested that the 'suppl y' of innovation may itself be constrained by resource scarcities, especial ly in the developing world. The following paper attempts to bridge these th eoretical gaps through the formal analysis of two issues: First, a simple ' Romer-Stiglitz' model of endogenous growth with resource scarcity and popul ation growth is developed to determine the optimal 'balanced' growth path f or the economy. Second, the basic model is extended to allow for the possib ility of resource availability constraining the supply of innovation, so th at in the long run innovation net of any resource constraint is zero. Howev er, under the latter conditions it is still possible to avoid resource exha ustion and thus achieve a constant level of per capita consumption in the l ong run. The paper therefore demonstrates that endogenous growth can overco me resource scarcity, but the outcome in the long run depends critically on assumptions concerning any constraints imposed by resource availability on the generation of innovation.