Page 6 - Discussion Paper: Sustainability Dynamics of Resource Use and Economic Growth
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Discussion Paper
Interaction between Resource and Economic System Analysis and Discussion
The economy comprises of households, industry (producers), Base Run: Overshoot and Collapse of Economy
and the market (vendors and suppliers). The industry uses and Resources
renewable resources for production of goods using labour
and capital from households. The process of production of The base run (Figure 3) shows four phases of growth and
goods results into flow of income to households (as payments collapse in the resources and economy. They are:
for cost of production). Within the model, the income is spent
by households for purchase of goods from the market through Phase I where both Renewable Resources and GDP are
vendors/sellers directly through producers. These vendors/ growing, followed by phase II where resources achieve a
suppliers in the market procure goods against payments maximum growth rate while GDP continues to grow. In phase
to the industry. The model has a closed-loop income flow III resources begin to decline while GDP growth continues, and
between consumers (households), industry (producers), and finally Phase IV where GDP peaks and collapses accompanied
the market (vendors and suppliers). by irreversible decline in resources.
Resource extraction for production of goods is shown as In the simulation run (Figure 3) as long as the resource
a function of resource intensity of the economy. This means consumption is lower than its regeneration, the resource
that if the intensity is kept constant, an increase in the rate stock is able to grow (Phase I). As the economy grows, the
of growth of economy would result in an increase in the rate extraction of resources for production purposes also increases.
of extraction of resources. However, if limits of resource This leads to a point where resource extraction equals
extraction are achieved, then the production of goods is likely resource regeneration and resource growth stagnates (Phase
to fall. If the resources are degraded beyond repair their II). Further due to continued economic growth the resource
regeneration rates would also fall. The resource would start extraction becomes greater than resource regeneration. This
behaving as a non-renewable resource, i.e., it will have no results into a gradual decline in the resource stock while the
regeneration flow. This would result in a peak of production GDP continues to grow (Phase III). However, a declining
of goods beyond which production would fall. Under this resource stock would pose limits to extraction for production
scenario, a falling production against a growing demand would of goods. These limits eventually lead to a peak and fall in GDP
result in inflationary pressure. accompanied by irreversible decline in resources (Phase IV).
Figure 3: Base Run: Overshoot and Collapse
Source: TERI Research
6 AUGUST 2015
Interaction between Resource and Economic System Analysis and Discussion
The economy comprises of households, industry (producers), Base Run: Overshoot and Collapse of Economy
and the market (vendors and suppliers). The industry uses and Resources
renewable resources for production of goods using labour
and capital from households. The process of production of The base run (Figure 3) shows four phases of growth and
goods results into flow of income to households (as payments collapse in the resources and economy. They are:
for cost of production). Within the model, the income is spent
by households for purchase of goods from the market through Phase I where both Renewable Resources and GDP are
vendors/sellers directly through producers. These vendors/ growing, followed by phase II where resources achieve a
suppliers in the market procure goods against payments maximum growth rate while GDP continues to grow. In phase
to the industry. The model has a closed-loop income flow III resources begin to decline while GDP growth continues, and
between consumers (households), industry (producers), and finally Phase IV where GDP peaks and collapses accompanied
the market (vendors and suppliers). by irreversible decline in resources.
Resource extraction for production of goods is shown as In the simulation run (Figure 3) as long as the resource
a function of resource intensity of the economy. This means consumption is lower than its regeneration, the resource
that if the intensity is kept constant, an increase in the rate stock is able to grow (Phase I). As the economy grows, the
of growth of economy would result in an increase in the rate extraction of resources for production purposes also increases.
of extraction of resources. However, if limits of resource This leads to a point where resource extraction equals
extraction are achieved, then the production of goods is likely resource regeneration and resource growth stagnates (Phase
to fall. If the resources are degraded beyond repair their II). Further due to continued economic growth the resource
regeneration rates would also fall. The resource would start extraction becomes greater than resource regeneration. This
behaving as a non-renewable resource, i.e., it will have no results into a gradual decline in the resource stock while the
regeneration flow. This would result in a peak of production GDP continues to grow (Phase III). However, a declining
of goods beyond which production would fall. Under this resource stock would pose limits to extraction for production
scenario, a falling production against a growing demand would of goods. These limits eventually lead to a peak and fall in GDP
result in inflationary pressure. accompanied by irreversible decline in resources (Phase IV).
Figure 3: Base Run: Overshoot and Collapse
Source: TERI Research
6 AUGUST 2015
