OPTIMAL GROWTH, EXHAUSTIBLE RESOURCES AND THE BALANCE OF PAYMENT

The dissertation investigates the dynamic aspects of resource extraction in open economies in the framework of intertemporal allocation theory. More specifically, it studies the optimal paths of capital accumulation and resource depletion in economies exporting exhaustible resources in exchange for other foreign products and/or borrowing in international capital markets. Throughout the dissertation, the Utilitarian criterion of social optimality is adopted and the optimization problems in question are solved using the techniques of Optimal Control Theory. First the optimal paths of capital accumulation and resource extraction are considered in the case of a resource exporting economy. One of the results is that the economy exhausts the resource in finite time and tends asymptotically to a saddle point equilibrium. Second the optimal growth of a small economy that employs the resource as an essential input and imports foreign technology is scrutinized. We demonstrate that the transformed dynamic system tends to a steady-state and while per capita consumption and the level of technology grow at a constant rate, the resource stock and the rate of extraction decline exponentially over time. Furthermore, a two-sector growth model with resource extraction and foreign borrowing is developed in order to analyze the movements in the balance of payments together with optimal extraction policies. The analysis revealed that, under certain assumptions, the optimal path of per capita consumption is determined by the relative magnitudes of the given interest rate and the rate of social discount and that resource extraction declines at a constant rate. On the other hand, it is shown that the trade account, hence the balance of payments may exhibit any conceivable trend over the planning horizon.