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Hicks meets Hotelling: the direction of technical change in capital–resource economies

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  • DI MARIA, CORRADO
  • VALENTE, SIMONE

Abstract

We analyze a two-sector growth model with directed technical change where man-made capital and exhaustible resources are essential for production. The relative profitability of factor-specific innovations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that any balanced growth equilibrium features purely resource -augmenting technical change. This result is compatible with alternative specifications of preferences and innovation technologies, as it hinges on the interplay between productive efficiency in the final sector, and the Hotelling rule characterizing the efficient depletion path for the exhaustible resource. Our result provides sound micro-foundations for the broad class of models of exogenous/endogenous growth where resource-augmenting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Environment and Development Economics.

Volume (Year): 13 (2008)
Issue (Month): 06 (December)
Pages: 691-717

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Handle: RePEc:cup:endeec:v:13:y:2008:i:06:p:691-717_00

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Cited by:
  1. Francisco J. André & Sjak Smulders, 2012. "Fueling Growth when Oil Peaks: Directed Technological Change and the Limits to Efficiency," CESifo Working Paper Series 3977, CESifo Group Munich.
  2. Sjak Smulders & Michael Toman & Cees Withagen, 2014. "Growth Theory and "Green Growth"," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 135, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  3. David I. Stern, 2010. "The Role of Energy in Economic Growth," CCEP Working Papers 0310, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
  4. David I. Stern & Astrid Kander, 2011. "The Role of Energy in the Industrial Revolution and Modern Economic Growth," CAMA Working Papers 2011-01, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  5. Karen Pittel & Lucas Bretschger, 2008. "Sectoral Heterogeneity, Resource Depletion, and Directed Technical Change: Theory and Policy," CER-ETH Economics working paper series 08/96, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  6. Hori, Takeo & Yamagami, Hiroaki, 2014. "Intellectual property rights protection in the presence of exhaustible resources," MPRA Paper 58064, University Library of Munich, Germany.
  7. Karen Pittel & Lucas Bretschger, 2009. "The Implications of Heterogeneous Resource Intensities on Technical Change and Growth," CER-ETH Economics working paper series 09/120, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  8. Ryo Horii & Masako Ikefuji, 2014. "Environment and Growth," Working Papers 2014.37, Fondazione Eni Enrico Mattei.
  9. Bretschger, Lucas & Smulders, Sjak, 2012. "Sustainability and substitution of exhaustible natural resources," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(4), pages 536-549.
  10. Smulders, Sjak & Withagen, Cees, 2012. "Green growth -- lessons from growth theory," Policy Research Working Paper Series 6230, The World Bank.
  11. Valente, Simone, 2011. "Intergenerational externalities, sustainability and welfare—The ambiguous effect of optimal policies on resource depletion," Resource and Energy Economics, Elsevier, Elsevier, vol. 33(4), pages 995-1014.
  12. Valente, Simone, 2011. "Habit formation and resource dependence in dynastic economies," Mathematical Social Sciences, Elsevier, Elsevier, vol. 61(3), pages 131-145, May.

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