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Natural resource scarcity and long-run development: central mechanisms when conditions are seemingly unfavourable

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Abstract

Using a dynamic model with non-renewable natural resources and endogenous knowledge creation, the paper analyses economic development under conditions which are generally considered as most unfavourable. We assume poor substitution between primary input factors, positive population growth and a limited supply of materials in the static part of the framework, as well as natural resources being an essential input into R&D, and constant or decreasing returns to innovative activities in the dynamic part. It is shown that there is an inverse relationship between input substitution and growth-enhancing sectoral change and that labour supply supports economic dynamics through the knowledge-creation effect. A permanent increase in living standards is achievable under free market conditions, but adjustment costs and errors in long-term expectations might impede this development.

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  • Lucas Bretschger, 2004. "Natural resource scarcity and long-run development: central mechanisms when conditions are seemingly unfavourable," CER-ETH Economics working paper series 03/29, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:03-29
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    References listed on IDEAS

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    4. Bretschger, L. & Smulders, J.A., 2003. "Sustainability and Substitution of Exhaustible Natural Resources : How Resource Prices Affect Long-Term R&D Investments," Other publications TiSEM 2ae844f6-5ea5-45d4-963d-1, Tilburg University, School of Economics and Management.
    5. Christian Groth & Poul Schou, 2002. "Can non-renewable resources alleviate the knife-edge character of endogenous growth?," Oxford Economic Papers, Oxford University Press, vol. 54(3), pages 386-411, July.
    6. David de la Croix & Matthias Doepke, 2003. "Inequality and Growth: Why Differential Fertility Matters," American Economic Review, American Economic Association, vol. 93(4), pages 1091-1113, September.
    7. R. M. Solow, 1974. "Intergenerational Equity and Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 29-45.
    8. 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.
    9. Joseph Stiglitz, 1974. "Growth with Exhaustible Natural Resources: Efficient and Optimal Growth Paths," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 123-137.
    10. Partha Dasgupta & Geoffrey Heal, 1974. "The Optimal Depletion of Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 3-28.
    11. Bretschger, Lucas, 1998. "How to substitute in order to sustain: knowledge driven growth under environmental restrictions," Environment and Development Economics, Cambridge University Press, vol. 3(4), pages 425-442, October.
    12. 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.
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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.
    2. Lucas Bretschger & Karen Pittel, 2005. "Innovative Investments, Natural Resources and Intergenerational Fairness: Are Pension Funds Good for Sustainable Development?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 141(III), pages 355-376, September.

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    More about this item

    Keywords

    endogenous technological change; environment; natural resources; sustainability;
    All these keywords.

    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, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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