Sustainability and substitution of exhaustible natural resources. How resource prices affect long-term R&D-investments
AbstractTraditional 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&Dbased endogenous growth model with exhaustible natural resources, labour, and knowledge 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 so that growth is sustained. We demonstrate that long-run growth can be sustained under free market conditions even when elasticities of substitution between man-made inputs and resources are low.
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Bibliographic InfoPaper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 03/26.
Length: 30 pages
Date of creation: Jun 2004
Date of revision:
Growth; non-renewable resources; substitution; investment incentives; endogenous technological change; sustainability;
Other versions of this item:
- Bretschger, L. & Smulders, J.A., 2003. "Sustainability and Substitution of Exhaustible Natural Resources: How Resource Prices Affect Long-Term R&D Investments," Discussion Paper 2003-71, Tilburg University, Center for Economic Research.
- Lucas Bretschger & Sjak Smulders, 2003. "Sustainability and Substitution of Exhaustible Natural Resources. How resource prices affect long-term R&D investments," Working Papers 2003.87, Fondazione Eni Enrico Mattei.
- 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; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-19 (All new papers)
- NEP-ENE-2005-11-19 (Energy Economics)
- NEP-ENV-2005-11-19 (Environmental Economics)
- NEP-INO-2005-11-19 (Innovation)
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