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How substitutable is natural capital?

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  • Anil Markandya

    ()

  • Suzette Pedroso-Galinato

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

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Cited by:
  1. Su, Xuanming & Zhou, Weisheng & Nakagami, Ken'Ichi & Ren, Hongbo & Mu, Hailin, 2012. "Capital stock-labor-energy substitution and production efficiency study for China," Energy Economics, Elsevier, vol. 34(4), pages 1208-1213.
  2. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2014. "The Great Shift : Macroeconomic projections For the World Economy at the 2050 Horizon," PSE - G-MOND WORKING PAPERS hal-00962464, HAL.
  3. Yazid Dissou & Lilia Karnizova & Qian Sun, 2012. "Industry-level Econometric Estimates of Energy-capital-labour Substitution with a Nested CES Production Function," Working Papers 1214E, University of Ottawa, Department of Economics.
  4. Carlo Carraro & Enrica De Cian, 2009. "Factor-Augmenting Technical Change: an Empirical Assessment," Working Papers 2009_29, Department of Economics, University of Venice "Ca' Foscari".
  5. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2014. "The Great Shift : Macroeconomic projections For the World Economy at the 2050 Horizon," Working Papers hal-00962464, HAL.
  6. Brown, Peter R. & Nelson, Rohan & Jacobs, Brent & Kokic, Phil & Tracey, Jacquie & Ahmed, Mehnaz & DeVoil, Peter, 2010. "Enabling natural resource managers to self-assess their adaptive capacity," Agricultural Systems, Elsevier, vol. 103(8), pages 562-568, October.
  7. 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.
  8. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2013. "Modelling the world economy at the 2050 horizon," PSE - Labex "OSE-Ouvrir la Science Economique" hal-00975545, HAL.
  9. Enrica De Cian & Carlo Carraro & Lea Nicita, 2010. "Modeling Biased Technical Change. Implications for Climate Policy," Working Papers 2010.4, Fondazione Eni Enrico Mattei.
  10. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2010. "The World Economy in 2050: a Tentative Picture," Working Papers 2010-27, CEPII research center.
  11. 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.
  12. Koji Tokimatsu & Rieko Yasuoka & Masahiro Nishio & Kazuhiro Ueta, 2014. "A study on forecasting paths of genuine savings and wealth without and with carbon dioxide constraints: development of shadow price functions," Environment, Development and Sustainability, Springer, vol. 16(3), pages 723-745, June.
  13. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2012. "The Great Shift: Macroeconomic projections for the world economy at the 2050 horizon," Working Papers 2012-03, CEPII research center.
  14. Keting Shen & John Whalley, 2013. "Capital-Labor-Energy Substitution in Nested CES Production Functions for China," NBER Working Papers 19104, National Bureau of Economic Research, Inc.
  15. Ha, Soo Jung & Lange, Ian & Lecca, Patrizio & Turner, Karen, 2012. "Econometric estimation of nested production functions and testing in a computable general equilibrium analysis of economy-wide rebound effec ts," Stirling Economics Discussion Papers 2012-08, University of Stirling, Division of Economics.

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