Subsistence Consumption and Natural Resource Depletion: Can resource-rich low-income countries realize sustainable consumption paths?

Abstract

This contribution is concerned with efficient use of a resource if households are characterized by Stone-Geary preferences with a minimum subsistence level of consumption. Subsistence consumption implies particular minimum requirements for initial endowments with reproducible man-made capital and resources. If these are not met, the economy is not able to cover subsistence consumption such as nutrition. Focusing on the steady state, we find that the equilibrium can be governed by zero or positive growth. The latter occurs if the rate of exogenous technical change exceeds the rate of time preference. In the former case, we can show that Hartwick’s investment rule applies in a steady state. Finally, we calibrate the model for developing but resource-rich countries and trace the full dynamic development of the economy. Furthermore, we evaluate this full adjustment process regarding several sustainability indicators.