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Sustainability and substitution of exhaustible natural resources : how resource prices affect long-term R&D-investments

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Author Info
Bretschger, L.
Smulders, S. (Tilburg University, Center for Economic Research)

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Abstract

Traditional resource economics has been criticised for assuming too high elasticities of substitution, not observing material balance principles and relying too much on planner solutions to obtain long-term growth. By analysing a multi-sector R&D based endogenous growth model with exhaustible natural resources, labour, knowledge, and physical capital as inputs, the present paper addresses this critique. We study transitional dynamics and the long-term growth path and identify conditions under which firms keep spending on research and development. We demonstrate that long-run growth can be sustained under free market conditions even when elasticities of substitution between capital and resources are low and the supply of physical capital is limited, which seems to be crucial for today's sustainability debate.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 71.

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Date of creation: 2003
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Handle: RePEc:dgr:kubcen:200371

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Find related papers by JEL classification:
Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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  1. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August. [Downloadable!] (restricted)
  2. Bovenberg, A.L. & Smulders, S., 1993. "Environmental Quality and Pollution-Saving Technological Change in Two- Sector Endogenous Growth Model," Papers 9321, Tilburg - Center for Economic Research.
  3. Grimaud, Andre & Rouge, Luc, 2003. "Non-renewable resources and growth with vertical innovations: optimum, equilibrium and economic policies," Journal of Environmental Economics and Management, Elsevier, vol. 45(2,supplem), pages 433-453, March. [Downloadable!] (restricted)
  4. Solow, Robert M, 1974. "The Economics of Resources or the Resources of Economics," American Economic Review, American Economic Association, vol. 64(2), pages 1-14, May.
  5. Bretschger, Lucas, 2001. "How to substitute in order to sustain: knowledge driven growth under environmental restrictions," Environment and Development Economics, Cambridge University Press, vol. 3(04), pages 425-442, April. [Downloadable!]
  6. Charles I. Jones, 1999. "Growth: With or Without Scale Effects?," American Economic Review, American Economic Association, vol. 89(2), pages 139-144, May. [Downloadable!] (restricted)
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  7. Lans Bovenberg, A. & Smulders, Sjak, 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Journal of Public Economics, Elsevier, vol. 57(3), pages 369-391, July. [Downloadable!] (restricted)
  8. R. M. Solow, 1973. "Intergenerational Equity and Exhaustable Resources," Working papers 103, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
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  2. Lucas Bretschger, 2004. "Natural resource scarcity and long-run development: central mechanisms when conditions are seemingly unfavourable," Economics working paper series 03/29, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  3. Di Maria, Corrado & Valente, Simone, 2006. "The Direction of Technical Change in Capital-Resource Economies," MPRA Paper 1040, University Library of Munich, Germany. [Downloadable!]
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  4. Hannes Egli, 2005. "A new approach to pollution modelling in models of the environmental Kuznets curve," Economics working paper series 05/39, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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  13. Christa N. Brunnschweiler, 2006. "Financing the alternative: renewable energy in developing and transition countries," Economics working paper series 06/49, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  14. Karen Pittel & Dirk T.G. Rübbelke, 2004. "Private Provision of Public Goods : Incentives for Donations," Economics working paper series 04/34, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  15. Simone Valente, 2005. "Genuine Dissaving and Optimal Growth," Others 0505009, EconWPA. [Downloadable!]
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  16. Lucas Bretschger, 2005. "Taxes, Mobile Capital, and Economic Dynamics in a Globalising World," Economics working paper series 05/43, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  17. Christoph Heinzel & Ralph Winkler, 2007. "The role of environmental and technology policies in the transition to a low-carbon energy industry," Economics working paper series 07/71, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  18. Lucas Bretschger, 2003. "Economics of technological change and the natural environment: how effective are innovations as a remedy for resource scarcity?," Economics working paper series 03/27, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich, revised Jun 2004. [Downloadable!]
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  20. Hans Gersbach & Ralph Winkler, 2007. "On the Design of Global Refunding and Climate Change," Economics working paper series 07/69, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich, revised Jul 2007. [Downloadable!]
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