The Tragedy of the Commons and Population Growth: Can Trade Prevent Economic Collapse?

Many developing countries depend crucially on open-access renewable natural resources (NR). Trade is generally seen as hurting the long-term health and even the survival of NR for commodity-exporting countries. I examine whether trade might be beneficial in the case of population growth. While dynamic general equilibrium models of NR have typically made the simplifying assumption of constant return to scale in the manufacturing sector, I also examine trade’s impact under decreasing and increasing returns. While population growth always results in economic collapse under autarky, the impact under trade depends critically on the manufacturing sector’s returns-to-scale technology. Empirical studies typically obtain increasing or constant returns, in which case trade is beneficial as it helps prevent economic (i.e., NR and society’s) collapse under population growth. Decreasing returns are more likely for small remote islands and small landlocked countries, in which case trade does not prevent NR collapse, though it delays society’s collapse. Moreover, under trade, migration from a commodity-exporting country with decreasing returns to one with increasing returns raises NR and welfare in both countries.

Keywords: Renewable natural resources (NR); Trade vs autarky; Population growth; NR and society’s collapse.

JEL codes: D62, F18, Q22, Q27, Q56