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Abstract
Using a simple neoclassical type growth model including both man-made and natural capital as inputs to production, the
theoretical basis for aU-shaped relationship between agricultural intensification and farm household investment in renewable
resource capital is established. As development of technology, infrastructure, or markets increase the relative return to
investment in man-made capital over natural capital, resource depletion occurs as man-made capital is substituted for lower
return natural capital. Once returns are equalized, both man-made and natural capital are accumulated. If labor and these forms
of capital are complementary, the output effects outweigh the substitution effects in the long run, leading to net accumulation
of natural as well as man-made capital as a result of such technological or market development. Population growth also
induces investment in both man-made and natural resource capital in the long run by increasing their marginal products.
However, population growth causes declining per capita levels of both natural and man-made capital and production per capita
in the long run, if technology is fixed and decreasing returns to scale. The model thus supports the Boserupian argument of
induced intensification and resource improvement, as well as the Malthusian argument of the impoverishing effects of
population growth. However, population growth may also induce development of infrastructure, markets, and technological or
institutional innovation by reducing the fixed costs per capita of these changes, though these developments may not occur
automatically. Government policies can play a large role in affecting whether these potential benefits of population growth are
realized. In addition, credit policies may reduce resource degradation caused by substitution of man-made for natural capital,
by allowing farmers to accumulate man-made capital (such as fertilizers) without depleting their natural capital. Policies to
internalize the external environmental costs of using man-made capital will reduce both types of capital and production,
indicating a clear trade-off between addressing environmental concerns on the one hand and reducing poverty and promoting
resource conservation investments on the other. By contrast, internalizing the external benefits of investments in resources
increases wealth and production per capita in the long run. The 'intertemporal externality' due to a higher private than social
rate of time preference does not justify interventions to promote investments in resource capital; rather it argues for the
promotion of savings and investment in general. © 1998 Elsevier Science B.V. All rights reserved.