Portfolio Equilibrium between Land, Gold, and Capital in a Growth Model with Agricultural, Industrial and Environmental Sectors

This study builds an endogenous growth model of capital accumulation and environmental change with portfolio equilibrium between land, gold, and physical wealth. The model is based on microeconomic mechanisms for determining the prices, rents and distributions of land, gold, and physical wealth. The economy consists of industrial, agricultural, and environmental sectors. The land is distributed between agricultural production and residential use. Gold is used for decoration and owned for storing value. The model is an integration of the neoclassical growth theory and Ricardian theory. The household’s decision is modeled with an alternative approach proposed by Zhang (1993). We simulate the motion of the economy. We demonstrate that the economic system has a unique stable steady state. We also conduct comparative dynamic analysis to demonstrate how exogenous changes in the propensity to use gold, the propensity to consume housing, the propensity to consume industrial goods, the propensity to consume agricultural goods, the propensity to save, the environment sector’s productivity, the tax rate on consumption of industrial goods, the population, and the tax rate on the land rent income affect the economic system during transitory processes and in long-term equilibrium.