Property rights for natural resources and sustainable growth in a two-country trade model

ABSTRACT We analyze a dynamic two-country trade model between a technological leading country and a technological follower economy. The output production in the follower economy needs a renewable natural resource as an essential input. We first prove that the innovation developed in the leading country guarantees sustainable growth in this economy. Moreover, trade of innovation also enables sustainability in the resource-dependent economy. We analyze different property rights regimes depending on whether the resource is managed by a central authority (a monopoly firm in the leading economy or the government in the follower country) or the exploitation rights are equally distributed among many harvesters in the follower country. The second main goal of the paper is to analyze how the ownership and distribution of the exploitation rights upon the natural resource may affect the sustainable growth rate for the two trading economies, the resource conservation and the consumers’ welfare. We obtain the standard result that the resource is better preserved when owned by a monopolistic agent (either a foreign firm or the government). When the property rights belong to a monopoly located in the leading country, the two economies grow faster than when they belong to either the government or many owners in the follower country. When the resource is monopoly-owned, consumers in the leading economy attain a higher welfare when the monopoly is located in this country, but the equivalent is not true for consumers in the follower economy. The comparison of welfares with the case of multiple owners is unclear