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How substitutable is natural capital?

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Author Info
Anil Markandya ()
Suzette Pedroso-Galinato

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Abstract

One of the recurring themes in the sustainability literature has been the extent to which a loss of natural capital can be made up for in welfare terms by an increase in other forms of capital. This issue was raised early on in the debate on sustainability by Pearce and has never really been resolved. This paper is an empirical attempt to measure the degree of substitutability between different forms of capital. A nested CES production function is used to allow flexibility in the estimated elasticities of substitution. Also, within this specification, natural resources and other inputs are combined in different levels of the function, thus allowing for different levels of substitutability. Institutional and economic indicators are also incorporated in the production function estimated. Results show that the elasticities derived from functions involving land resources were generally around one or greater, implying a fairly high degree of substitutability. Furthermore, changes in trade openness and private sector investment have a statistically significant and direct relationship on the efficiency of production and hence on income generation. No statistically significant relationship between income and any of the institutional indicators was found. Copyright Springer Science+Business Media, Inc. 2007

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File URL: http://hdl.handle.net/10.1007/s10640-007-9117-4
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Publisher Info
Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 37 (2007)
Issue (Month): 1 (May)
Pages: 297-312
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Handle: RePEc:kap:enreec:v:37:y:2007:i:1:p:297-312

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Web page: http://www.springerlink.com/link.asp?id=100263

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Related research
Keywords: Natural resources; Nested CES production function; Wealth accounting; O47; Q24; Q32;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Kemfert, Claudia, 1998. "Estimated substitution elasticities of a nested CES production function approach for Germany," Energy Economics, Elsevier, vol. 20(3), pages 249-264, June. [Downloadable!] (restricted)
  3. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank. [Downloadable!]
  4. Gasper A. Garofalo & Devinder M. Malhotra, 1988. "Aggregation of Capital and Its Substitution with Energy," Eastern Economic Journal, Eastern Economic Association, vol. 14(3), pages 251-262, Jul-Sep. [Downloadable!]
  5. Prywes, Menahem, 1986. "A nested CES approach to capital-energy substitution," Energy Economics, Elsevier, vol. 8(1), pages 22-28, January. [Downloadable!] (restricted)
  6. Griffin, James M & Gregory, Paul R, 1976. "An Intercountry Translog Model of Energy Substitution Responses," American Economic Review, American Economic Association, vol. 66(5), pages 845-57, December. [Downloadable!] (restricted)
  7. Anderson, Kent P., 1972. "Optimal growth when the stock of resources is finite and depletable," Journal of Economic Theory, Elsevier, vol. 4(2), pages 256-267, April. [Downloadable!] (restricted)
  8. Hnatkovska, Viktoria & Loayza, Norman, 2004. "Volatility and growth," Policy Research Working Paper Series 3184, The World Bank. [Downloadable!]
  9. Chang, Kuo-Ping, 1994. "Capital-energy substitution and the multi-level CES production function," Energy Economics, Elsevier, vol. 16(1), pages 22-26, January. [Downloadable!] (restricted)
  10. Mitra, Tapan, 1978. "Efficient growth with exhaustible resources in a neoclassical model," Journal of Economic Theory, Elsevier, vol. 17(1), pages 114-129, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. R. Turner, 2007. "Limits to CBA in UK and European environmental policy: retrospects and future prospects," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(1), pages 253-269, May. [Downloadable!] (restricted)
  2. Karl-Göran Mäler, 2007. "Wealth and sustainable development: the role of David Pearce," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(1), pages 63-75, May. [Downloadable!] (restricted)
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