It is now generally agreed that the prediction of long-run development has to include natural resource use. To focus on the long run is, however, not equivalent to the use of balanced growth assumptions. It should be kept in mind that reaching a long-run equilibrium might take considerable time. Transition phases often exhibit characteristics which differ from the long-run state of the economy, but are important for its nature.

We discuss a number of different drivers that govern the transition to the steady state, including the development of stocks, substitution possibilities, savings decisions, and institutions. Based on this theoretical evaluation, we discuss five contributions of the conference on sustainable resource use and economic dynamics (SURED 2006) included in this special issue.

We analyze a two-sector growth model with directed technical change where man-made capital and exhaustible resources are essential for production. The relative profitability of factor-specific innovations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that any balanced growth equilibrium features purely resource-augmenting technical change. This result is compatible with alternative specifications of preferences and innovation technologies, as it hinges on the interplay between productive efficiency in the final sector, and the Hotelling rule characterizing the efficient depletion path for the exhaustible resource. Our result provides sound micro-foundations for the broad class of models of exogenous/endogenous growth where resource-augmenting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.

The effective labor possibilities frontier (ELPF) is defined as the set of statically efficient allocations of labor inputs in the competing tasks of production and R&D. It is concave if labor is heterogeneous. In an R&D-based growth model with an essential non-renewable natural resource, the shape of the ELPF affects the optimal speed of the transition. If resource endowment is poor, transition is slower and involves a smaller R&D effort, and slower growth in per capita consumption, in the case of a heterogeneous labor force as compared to a homogeneous one. Policies that modify the distribution of skills in the population imply shifts of the ELPF. We provide a taxonomy of possible shifts of the ELPF, and link them to education policy or demographic trends.

This paper examines how natural resource revenues interact with growth and welfare in an overlapping generations model with altruism. The revenues are allocated between public productive services and direct transfers to members of society by spending policies. We analyze how these policies influence the dynamics, and how the dynamics are influenced by the revenue. Abundant revenues may harm growth, but growth and welfare can be oppositely affected. We also provide the social planner solution under which revenues enhance growth. Overall, the analysis suggests that variation in the strength of altruism and in spending policies may be part of the reason why natural resources seem to affect economic performance across nations differently.

Well-defined and enforceable property rights are usually seen as a prerequisite for optimal resource management. However, the interaction effects between different renewable resource pools with different ownership structures are often not well recognized. In this paper we introduce these interaction effects in optimal fishery management theory. Various property rights regimes and market structures for fisheries are analyzed. Furthermore, we perform a sensitivity analysis with respect to the carrying capacity of a fish lake for the different agents. We describe various approach paths towards the new equilibrium after opening up to a common market. We show that a decline in market power leads to a lower stock and a higher supply. Furthermore we identify conditions under which market power might reduce profits.

The exact specification and motivation for an environmental Kuznets curve (EKC)is the subject of a vast literature in environmental economics. A remarkablydiverse set of econometric approaches and candidate regressors have beenproposed, which highlights the degree of model uncertainty surrounding therelationship between environmental quality and pollution. We introduce Bayesianmodel averaging (BMA) to the EKC analysis to examine: (a) whether a sulphurdioxide EKC exists, and if so (b) which income/pollution specification issupported by the data. BMA addresses model uncertainty as part of the empiricalstrategy by incorporating the uncertainty about the validity of competingtheories into the posterior distribution. We find only weak support for an EKC,which disappears altogether when we address issues relating to the extremeoversampling of two industrialized countries in the sample. In contrast, ourresults highlight the relative importance of political economy and site-specificvariables (specifically executive constraints and precipitation variation) inexplaining pollution outcomes. Trade is shown to play an important indirectrole, as it moderates the influence of the composition effect on pollution.