Page 3 - Discussion Paper: Sustainability Dynamics of Resource Use and Economic Growth
P. 3
Discussion Paper
linkages in a more transparent manner (Wiesmann n.d.). Parameters for Base Run
The model structure and parameters used in this study
are not meant to provide a forecast or prediction but is Wealth in Economy = INR 20 billion
intended to set up a model environment where simulations Economy’s Growth Rate Curve = 1% to 7%
could be used to test assumptions and policy implications. Resource Intensity of Economy = 1 kg/rupee
Thus the simulation graphs do not show any value of Renewable Resources = 1,000 billion kg (carrying capacity =
parameters on the y axis since the emphasis is on the 2,000 billion kg)
behaviour of parameters over time. The model is launched Natural Resource Regeneration Rate = 2%
for 200 years to capture the delayed feedbacks and its
long-term impacts on economy and resources. Endogenous Feedbacks of Renewable
Resources and Economy
Model Description3
Figure 1 illustrates the growth dynamics in the natural
This model consists of two sub systems—Renewable Natural resource system and the economic system, in the absence of
Resources and the Economy. any interactions between them.
Renewable Resources The growth of natural resources depends on its own level
of stock. An increase in resource stock would result into
The resource stock is taken as a reservoir of renewable an increase in its regeneration flow, thus creating a positive
resources comprising of forests, ground water, and fisheries. reinforcing loop. But its growth is not compounding infinitely.
Its Initial value is kept at 1,000 billion kg and carrying capacity This is because natural resources have a carrying capacity
is fixed at twice its initial value, i.e., 2,000 billion kg. These of their own which limits their maximum achievable level of
resources regenerate at 2% and can grow upto their growth (Schreiber n.d.; Ford 2009). In the model, natural
carrying capacity. resource carrying capacity is assumed to be twice the
resource’s initial stock indicating that the resource stock has
Economy potential to grow. This is expressed in the model by making
the regeneration flow a function of the resource stock
The Economy is yet to develop and the pace of its growth density (Figure 3). As the density approaches its maximum,
represents growing population and economic development. the regeneration rate tends towards zero.4
Initial wealth in economy is kept at INR 20 billion split across
Producers, Sellers, and Household. Economy’s growth rate Similarly, the regeneration flow also declines due to
is assumed to be bell shaped over simulation time. It starts a decline in the resource stock. If it falls below a particular
with 1% reaches a maximum of 7% and then falls back to threshold level, its regeneration rate would tend towards
1%. This represents the five stages of economic growth and zero. Therefore, a continuous decline in the resource stock
development beginning with traditional economy and reaching could breach the threshold levels leading to non-renewability
full prosperity (Rostow 1959). Gross Domestic Product of of the resource. It is in-between these two stages of resource
the Economy is calculated as a sum of flow of production of reaching its carrying capacity and irreversible degradation that
goods (shown as cost of production) and value addition to it is available for sustainable harvest.
the economy (shown as growth in GDP). The economy is
considered to be a closed system having no interaction with The case of economic growth is somewhat different.
external environment, synonymous to World Economy or an Its growth is taken as exponential in nature (Johnston
Isolated Economy. 2014). Unlike the resource growth dynamics which has
an endogenous growth limit due to its carrying capacity, the
Resource Intensity of Economy economy does not seem to have any such carrying capacity
of its own. Although its growth reaches maturity, the rate of
Resource intensity is an exogenous variable in the model. growth does not reach zero and the economy continues to
It is a measure of the resources needed for the production grow, albeit at a slow rate. Thus, the economic growth curve
and processing of goods in the economy. It therefore also represents exponential pattern for most part of the simulation,
measures the efficiency of resource use in the economy. while the resource stock grows and achieves stagnation.
Resource intensity is measured as kilograms of resources
consumed per unit of economic output. Its initial value is 4 Dx/dt= r x(1-x/K), where r is the intrinsic rate of growth of the
kept at 1 kg/rupee. population, K is its carrying capacity and x is the population density.
Solving this differential equation would give a functional relationship
3 Complete model structure, equations, parameter values, and which depicts the results of the natural resource growth.
description of each variable are provided in the Annexure.
AUGUST 2015 3
linkages in a more transparent manner (Wiesmann n.d.). Parameters for Base Run
The model structure and parameters used in this study
are not meant to provide a forecast or prediction but is Wealth in Economy = INR 20 billion
intended to set up a model environment where simulations Economy’s Growth Rate Curve = 1% to 7%
could be used to test assumptions and policy implications. Resource Intensity of Economy = 1 kg/rupee
Thus the simulation graphs do not show any value of Renewable Resources = 1,000 billion kg (carrying capacity =
parameters on the y axis since the emphasis is on the 2,000 billion kg)
behaviour of parameters over time. The model is launched Natural Resource Regeneration Rate = 2%
for 200 years to capture the delayed feedbacks and its
long-term impacts on economy and resources. Endogenous Feedbacks of Renewable
Resources and Economy
Model Description3
Figure 1 illustrates the growth dynamics in the natural
This model consists of two sub systems—Renewable Natural resource system and the economic system, in the absence of
Resources and the Economy. any interactions between them.
Renewable Resources The growth of natural resources depends on its own level
of stock. An increase in resource stock would result into
The resource stock is taken as a reservoir of renewable an increase in its regeneration flow, thus creating a positive
resources comprising of forests, ground water, and fisheries. reinforcing loop. But its growth is not compounding infinitely.
Its Initial value is kept at 1,000 billion kg and carrying capacity This is because natural resources have a carrying capacity
is fixed at twice its initial value, i.e., 2,000 billion kg. These of their own which limits their maximum achievable level of
resources regenerate at 2% and can grow upto their growth (Schreiber n.d.; Ford 2009). In the model, natural
carrying capacity. resource carrying capacity is assumed to be twice the
resource’s initial stock indicating that the resource stock has
Economy potential to grow. This is expressed in the model by making
the regeneration flow a function of the resource stock
The Economy is yet to develop and the pace of its growth density (Figure 3). As the density approaches its maximum,
represents growing population and economic development. the regeneration rate tends towards zero.4
Initial wealth in economy is kept at INR 20 billion split across
Producers, Sellers, and Household. Economy’s growth rate Similarly, the regeneration flow also declines due to
is assumed to be bell shaped over simulation time. It starts a decline in the resource stock. If it falls below a particular
with 1% reaches a maximum of 7% and then falls back to threshold level, its regeneration rate would tend towards
1%. This represents the five stages of economic growth and zero. Therefore, a continuous decline in the resource stock
development beginning with traditional economy and reaching could breach the threshold levels leading to non-renewability
full prosperity (Rostow 1959). Gross Domestic Product of of the resource. It is in-between these two stages of resource
the Economy is calculated as a sum of flow of production of reaching its carrying capacity and irreversible degradation that
goods (shown as cost of production) and value addition to it is available for sustainable harvest.
the economy (shown as growth in GDP). The economy is
considered to be a closed system having no interaction with The case of economic growth is somewhat different.
external environment, synonymous to World Economy or an Its growth is taken as exponential in nature (Johnston
Isolated Economy. 2014). Unlike the resource growth dynamics which has
an endogenous growth limit due to its carrying capacity, the
Resource Intensity of Economy economy does not seem to have any such carrying capacity
of its own. Although its growth reaches maturity, the rate of
Resource intensity is an exogenous variable in the model. growth does not reach zero and the economy continues to
It is a measure of the resources needed for the production grow, albeit at a slow rate. Thus, the economic growth curve
and processing of goods in the economy. It therefore also represents exponential pattern for most part of the simulation,
measures the efficiency of resource use in the economy. while the resource stock grows and achieves stagnation.
Resource intensity is measured as kilograms of resources
consumed per unit of economic output. Its initial value is 4 Dx/dt= r x(1-x/K), where r is the intrinsic rate of growth of the
kept at 1 kg/rupee. population, K is its carrying capacity and x is the population density.
Solving this differential equation would give a functional relationship
3 Complete model structure, equations, parameter values, and which depicts the results of the natural resource growth.
description of each variable are provided in the Annexure.
AUGUST 2015 3
