Growth in Overlapping Generation Economies with Non-Renewable Resources

Abstract

Feasibility of positive steady-state growth in overlapping generation (OLG) economies that use non-renewable resources as essential inputs in the production process is analyzed. The model we use is, in essence, that of Diamond [9] with non-renewable resources and exogenous technological progress. The main finding is that having a high enough labor share is a necessary condition for the economy to exhibit positive steady-state growth rate. This condition does not need to be satisfied in infinitely-lived agent economies. The reason is that although technological progress is introduced exogenously, in the OLG economy, the growth rate of the economy depends among others on capital accumulation, which requires savings paid out of wage income. We also show that the unique balanced growth path is efficient in the Pareto sense, as expected.