Variable Returns to Scale, Resources and Population
Economics has been called the dismal science, but accounts of contemporary (endogenous) theories of growth leave the strong impression that rather than being the bearers of bad news, the authors radiate optimism.1 Issues of resource scarcities, stationary states and subsistence wages rarely get a mention.2 Instead the theories describe the potential for continually rising productivity, rising living standards and growing populations. This chapter is written as a reaction to what seems the excessive optimism of this literature. To be fair, the object of these theories is to explain the reality of observed rises in total factor productivity (TFP) and living standards. Where they seem to be overly optimistic is first in the neglect of resource issues and secondly, but associated with the first point, in the attempt to explain the facts of recent growth as an equilibrium process. On the other hand, if resource supplies are limited it would seem inevitable that explanations of rising per capita outputs should be in the form of transition processes, rather than long-run growth equilibria. Indeed, to the extent that exhaustible resources contribute to rising productivity, it would seem necessary to allow for interruptions to growth and/or periods of decline.
KeywordsTotal Factor Productivity Renewable Resource Endogenous Growth Variable Return Resource Stock
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