Sustainable water resource and endogenous economic growth

- A two-sector endogenous growth model to study Poyang Lake is proposed.
- The feasible and optimal conditions for a sustainable growth path are provided.
- Impoundment activities should grow to achieve a long-run sustainable growth.
- The production of knowledge about utilizing water should be encouraged.

Poyang Lake suffers from a severe shortage of water, due to the construction of the Three Gorges Dam and other hydropower stations along the upper Yangtze River. In this paper, we propose a two-sector endogenous growth model to investigate the effects of extractive water use and impoundment activities on the optimal sustainable growth path. To offset the negative impact of the extractive use on the regenerative capacities of water resources, the impoundment activities should grow at a constant rate. We also provide a numerical example to illustrate the mechanisms of the endowment and the regenerative capacities of water resources on the long-run economic growth path. We find out some theoretical evidence to support the construction of a water conservancy project to restore regeneration capacities of Poyang Lake.