Advances in Economics and Business Vol. 4(9), pp. 500 - 505
DOI: 10.13189/aeb.2016.040904
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How the Solow Growth Model Changes with Effective Use of Natural Resources


Kristína Gardoňová *
Institute of Economic Research, Slovak Academy of Sciences, Slovakia

ABSTRACT

There are many extensions of the Solow model. We took one of the most recent ones that deals with the environment - Romer's model with environmental aspects, in which he discusses the effects of land and natural resources' limitations on economic growth. Furthermore, we took the theoretical knowledge of Weil, who says that the drag caused by the limited amount of natural resources can be outweighed by the spur created by technological progress with the help of substitution of more expensive production factors with cheaper, less valuable, ones. In this paper we put these two thoughts together, creating a model based on Romer's analysis with inclusion of a new parameter - effective use of natural resources that grows at a rate of technological progress. We show that theoretical results of the Solow model still hold, however we provide a better explanation of the factors that limit or reinforce the economic growth.

KEYWORDS
Solow Model, Economic Growth, Natural Resources, Technological Progress, Substitution, Effective, Environment

Cite this paper
Kristína Gardoňová . "How the Solow Growth Model Changes with Effective Use of Natural Resources." Advances in Economics and Business 4.9 (2016) 500 - 505. doi: 10.13189/aeb.2016.040904.