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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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Bibliographic Info

Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 03/29.

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Length: 23 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:eth:wpswif:03-29

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Keywords: endogenous technological change; environment; natural resources; sustainability;

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  1. 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.
  2. 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.
  3. Christian Scholz & Georg Ziemes, 1999. "Exhaustible Resources, Monopolistic Competition, and Endogenous Growth," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 13(2), pages 169-185, March.
  4. 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.
  5. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  6. Smulders, J.A., 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Open Access publications from Tilburg University urn:nbn:nl:ui:12-153411, Tilburg University.
  7. 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(04), pages 425-442, October.
  8. Robert Tamura, 2000. "Growth, fertility and human capital: A survey," Spanish Economic Review, Springer, vol. 2(3), pages 183-229.
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Cited by:
  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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