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On Technical Change in the Elasticities of Resource Inputs

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Author Info

  • Jakub, GROWIEC

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

  • Ingmar, SCHUMACHER

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

Abstract

This article considers an economy whose production function takes both renewable and non-renewable resources as inputs. We extend the current literature by allowing for exogneous technical change in the elasticity of subsstitution between these two types of resources. In addition, we study the consequences of biased technical change which alters the resources’ relative productivities. We derive long-run asymptotic results, which we use to compare several cases. In the benchmark case of no technical change, our results are close to those obtained by Dasgupta and Heal (1974). In the case of technical change helps obtain positive long-run production despite the depletion of non-renewable resources. In the biased technical change case, long-run production is only possible either if non-renewable resources are non-essential or if biased technical change is quick enough to compensate for the decreasing flow of non-renewable resources. We embed our production function in an optimal model and study its dynamics. As a steady state (or a balanced growth path) is only attainable as time goes to infinity, we resort to numerical simulations to convey what is happening during the short and medium run. Our results provide new considerations for the debate on natural resources. We suggest that technical change should be directed to the resource which is most important for production.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2006031.

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Length: 37
Date of creation: 01 Jun 2006
Date of revision:
Handle: RePEc:ctl:louvec:2006031

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Keywords: Elasticity of substitution; Technical change; Biased technical change; Non-renewable resources; Renewable resources;

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References

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  1. Bretschger, Lucas, 2005. "Economics of technological change and the natural environment: How effective are innovations as a remedy for resource scarcity?," Ecological Economics, Elsevier, vol. 54(2-3), pages 148-163, August.
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  3. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
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  7. Miyagiwa, Kaz & Papageorgiou, Chris, 2007. "Endogenous aggregate elasticity of substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 2899-2919, September.
  8. Grimaud, André & Rougé, Luc, 2003. "Polluting Non-Renewable Resources, Innovation and Growth : Welfare and Environmental Policy," IDEI Working Papers 206, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Heal, Geoffrey M., 1993. "The optimal use of exhaustible resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 18, pages 855-880 Elsevier.
  10. Cleveland, Cutler J. & Ruth, Matthias, 1997. "When, where, and by how much do biophysical limits constrain the economic process?: A survey of Nicholas Georgescu-Roegen's contribution to ecological economics," Ecological Economics, Elsevier, vol. 22(3), pages 203-223, September.
  11. AMIGUES Jean-Pierre & MOREAUX Michel & RICCI Francesco, 2006. "Overcoming the Natural Resource Constraint Through Dedicated R&D Effort with Heterogenous Labor Supply," LERNA Working Papers 06.22.215, LERNA, University of Toulouse.
  12. Klump, Rainer & Preissler, Harald, 2000. " CES Production Functions and Economic Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 41-56, March.
  13. de La Grandville, Olivier, 1989. "Erratum [In Quest of the Slutsky Diamond]," American Economic Review, American Economic Association, vol. 79(5), pages 1307, December.
  14. GROWIEC, Jakub & SCHUMACHER, Ingmar, 2006. "On technical change in the elasticities of resource inputs," CORE Discussion Papers 2006063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  15. Yuhn, Ky-hyang, 1991. "Economic Growth, Technical Change Biases, and the Elasticity of Substitution: A Test of the De La Grandville Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 340-46, May.
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  17. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
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Cited by:
  1. Growiec, Jakub & Schumacher, Ingmar, 2008. "On technical change in the elasticities of resource inputs," Resources Policy, Elsevier, vol. 33(4), pages 210-221, December.
  2. Pierre-André Jouvet & Ingmar Schumacher, 2011. "Learning-by-doing and the Costs of a Backstop for Energy Transition and Sustainability," Working Papers hal-00637960, HAL.

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