Steady State Behavior of the Iranian Economy with Stochastic Energy Resources

Document Type : Research Paper

Authors

1 Department of Economics,Shiraz University, Shiraz, Iran.

2 University of Larestan, Larestan, Iran.

Abstract

The pertinent question is whether scarcity of non-renewable energy resources limits economic growth. Given that the earth's natural resources are limited, the answer appears to be yes. However, there are two reasons to reject this question. Technological advancements that conserved resources may be able to eliminate resource scarcity. Additionally, countries can import resources from other countries. This paper aims to develop an endogenous growth model with stochastic exhaustible energy resources and use it to explain the economy's steady state behavior. We consider the uncertainty associated with extractable energy resources and then develop a stochastic growth model on this basis.
Additionally, we solve this model analytically using the Stochastic Hamilton-Jacobin-Bellman method (SHJB method). Finally, for the Iranian economy, we apply the analytical solution. The primary findings indicate that as natural resource extraction becomes even more uncertain, the rate of economic growth slows, which results in a subsequent decline in the rate of resource extraction. Furthermore, we observe that the variance in energy extraction in the Iranian economy is approximately 0.22. Under these conditions of uncertainty, the optimal economic growth rate in a steady state will be 7.1 percent with an extraction rate of 1.1 percent.

Keywords

Main Subjects


Abdoli, G. (2009). Estimation of social discount rate for iran. Economic Research
Review, 10(3(34)), 135-156.
Achdou, Y., Buera, F. J., Lasry, J. -M., Lions, P. -L., & Moll, B. (2014). Partial
differential equation models in macroeconomics. Philosophical Transactions
of the Royal Society A: Mathematical, Physical and Engineering Sciences,
372(2028), 20130397.
Achdou, Y., Han, J., Lasry, J. -M., Lions, P. -L., & Moll, B. (2014).
Heterogeneous agent models in continuous time. Preprint, 14.
Aghion, P., Blundell, R., Griffith, R., Howitt, P., & Prantl, S. (2009). The effects
of entry on incumbent innovation and productivity. The Review of Economics
and Statistics, 91(1), 20-32.
Aguilera, R. F., & Ripple, R. D. (2012). Technological progress and the
availability of European oil and gas resources. Applied Energy, 96, 387-392.
Aliyu, M. (2018). A local iterative approach for solving the stochastic Hamilton‐
Jacobi‐Bellman equation (SHJBE) arising in the stochastic control of affine
nonlinear systems. Optimal Control Applications and Methods, 39(2), 997-
1010.
Aseev, S. M., & Kryazhimskii, A. (2007). The pontryagin maximum principle and
optimal economic growth problems. Proceedings of the Steklov Institute of
Mathematics, 257(1), 1-255.
Banerjee, T., & Siebert, R. (2017). Dynamic impact of uncertainty on R&D
cooperation formation and research performance: Evidence from the biopharmaceutical industry. Research Policy, 46(7), 1255-1271.
Barbier, E. B. (2021). The evolution of economic views on natural resource
scarcity. Review of Environmental Economics and Policy, 15(1), 24-44.
Bayraktar, E., & Sirbu, M. (2013). Stochastic perron's method for Hamilton--
Jacobi--Bellman equations. SIAM Journal on Control and Optimization,
51(6), 4274-4294.
Bekaert, G., Engstrom, E. C., & Xu, N. R. (2019). The time variation in risk
appetite and uncertainty (No. w25673). National Bureau of Economic
Research.
Beladi, H., Deng, J., & Hu, M. (2021). Cash flow uncertainty, financial constraints
and R&D investment. International Review of Financial Analysis, 101785.
Bellman, R. (1952). On the theory of dynamic programming. Proceedings of the
National Academy of Sciences of the United States of America, 38(8), 716.
Bellman, R., & Kalaba, R. E. (1965). Dynamic programming and modern control
theory. (Vol. 81), Citeseer.
Bellman, R. E. (1962). Stuart E. dreyfus-applied dynamic programming.
Princeton/New Jersey.
Besov, K. O. (2014). On necessary optimality conditions for infinite-horizon
economic growth problems with locally unbounded instantaneous utility
function. Proceedings of the Steklov Institute of Mathematics, 284(1), 50-80.