Francisco Cabo

A TIME-CONSISTENT AGREEMENT IN AN INTERREGIONAL DIFFERENTIAL GAME ON POLLUTION AND TRADE

This paper studies a transboundary pollution problem between two neighbour regions as a dynamic game. These two regions do not only share an environmental problem but they are also engaged in interregional trade. A good produced in one region is traded to the other which uses it as an input. This intermediate good is supplied by the former and demanded by the latter. The supply-demand scheme determines the price and production of the intermediate good. Thus total production is fixed in both regions, and the emissions of pollutants are also determined as a by-product. Cooperation cuts down production and trade, and in consequence the emissions of pollutants. Therefore, the environmental gain from cooperation overcomes the shrink in the interregional trade. An allocation mechanism to share the surplus of cooperation is defined, which guarantees a time-consistent agreement between both regions.

TECHNOLOGICAL LEADERSHIP AND SUSTAINABLE GROWTH IN A BILATERAL TRADE MODEL

This paper develops a trade model for a technologically leading country and a developing country that exploits a renewable natural resource. Technology diffuses from the technological leader to the developing country through foreign direct investment (FDI). Alternatively, innovative activities can also be carried out in the developing economy. We prove the existence and uniqueness of an equilibrium path along which both countries grow at the same rate, maintaining the natural-resource stock at a constant level. The saddle-point property for this equilibrium is proved and a sensitivity analysis is carried out. The steady-state growth rate and consumption under both scenarios are compared and the effect of resource abundance analyzed.

North — South Trade and the Sustainability of Economic Growth: A Model with Environmental Constraints

We present a model of trade between two different regions, North and South. The South specializes in a natural resource intensive good which is sold to and used as an input in the North. Assuming an environmental R&D sector in the North, which increases the efficiency of the traded good, the North-South trade and the natural resource management are modeled in a dynamic way. The existence of a sustained growth in the North, which allows a permanent growth of consumption in the South without exhausting natural resource, is proved. Transitional dynamics is also studied.

Valuation of biodiversity within a north south trade model

Under a General Equilibrium model of International Trade, industrialized countries export capital intensive goods, while developing countries export natural resource intensive goods. Biodiversity is viewed as the number of species conserved while producing these goods. Higher conservation increases demand, but lowers goods supply. Consumers value biodiversity as the weighted sum of all the different species. If producers of both goods conserve more species, the Souths terms of trade will rise in relation to the Norths. Furthermore, we believe that a switch in consumer preferences, to a more homogeneous valuation of the species, is likely. This change would drop the Souths terms of trade. Therefore, under these circumstances, this region is facing a risk. In conserving additional species, the South would be better off, both because its terms of trade increases and because the risk associated with a switch in preferences decreases.

THE ENDOGENOUS DETERMINATION OF RETIREMENT AGE AND SOCIAL SECURITY BENEFITS

An aging population in modern societies has put stress on public pension systems. To prevent social security deficits from increasing to unbounded levels of public debt we focus on two policies: reducing the generosity of pension benefits, determined by the government, and postponing the effective retirement age, chosen by employees. An atomistic employee would disregard the effect of his retirement decision on the public debt and would retire as soon as possible. Conversely, an ideal farsighted agency considering all current and future employees would postpone retirement, thereby alleviating the pressure on public debt and allowing a more generous long-run pension. The government may design a proper incentive strategy to induce myopic atomistic decision makers to act nonmyopically. This strategy is a two-part incentive with nonlinear dependence on the stock of public debt. It is credible if deceiving employees slightly adjust their retirement-age decisions to increments in the public debt.

Towards an ecological technology for global growth in a North-South trade model

In a world of rapid and cheap communication, where countries are not isolated, ideas and information spread quickly across international borders. Technological progress, leading to more efficient productive processes, in terms of the required amount of natural resources, seems to be the key to overcoming the conflict between environmental concerns and economic growth. This paper investigates the relationship between natural resources and sustainable economic growth in a North-South trade model. We assume that a process of capital transfer from North to South is performed in two different scenarios depending on the effect of this transfer upon the Southern economy. Within a game theory framework, we characterize the optimal paths of global economic growth which respects the sustainable use of natural resources.

Unbounded growth in the Neoclassical growth model with non-constant discounting

For a Neoclassical growth model, the literature highlights that exponential discounting is observationally equivalent to quasi-hyperbolic discounting, if the instantaneous discount rate decreases asymptotically towards a positive value. Conversely, in this paper a zero long-run value allows a solution without stagnation. We prove that a less than exponential but unbounded growth can be attained, even without technological progress. The growth rate of consumption decreases asymptotically towards zero, although so slowly that consumption grows unboundedly. The asymptotic convergence towards a non-hyperbolic steady-state which saving rate matches the intertemporal elasticity of substitution and the speed of convergence towards this equilibrium are analyzed.

On the Effect of Resource Exploitation on Growth: Domestic Innovation vs. Technological Diffusion Through Trade

The economic growth in a developing country endowed with a natural resource and with a resource-dependent economy can be based on its own investments in new technology. Conversely, it can rely on trade as a channel for technology diffusion from a technologically advanced country. The existence, uniqueness and stability of a sustainable growth path are proved under both assumptions. Our second concern is on the resource curse hypothesis. When the developing country does not export the natural resource but uses it as an essential input in the production of a final good, resource bounty is not a curse. Resource abundance increases long-run growth in the closed-economy scenario, and it is growth-neutral but consumption-enhancing when technology is transmitted from abroad through international trade.

Sustainable Growth in a North-South Trade Model

Abstract A model with two different regions that trade with each other is presented. The South specializes in a resource intensive good while the North specializes in a capital intensive good. The North-South trade and the management of natural resources are modelled in a dynamic way so that sustainable economic growth can be analyzed. The existence of balanced paths that allow sustained growth in the North and permanent growth of consumption in the South without exhausting Southern natural resources is proved. The transitional dynamics to a balanced path is also studied.

A NOTE ON THE STABILITY OF FULLY ENDOGENOUS GROWTH WITH INCREASING RETURNS AND EXHAUSTIBLE RESOURCES

We analyze a general R&D-based endogenous growth model with a growth-essential natural resource. The economy comprises two separate sectors, final output and R&D, both directly or indirectly dependent on the natural resource. Because the resource is exhaustible and it is an essential productive input, increasing returns to scale to manmade inputs are compatible with nonexplosive sustained growth. The instability problem usually associated with increasing returns is overcome thanks to the existence of imperfect markets in a decentralized economy. We find an admissible range of values for the elasticity of capital in the R&D sector under which growth is fully endogenous and saddlepath stable, with no need of exogenous population growth.