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The Direction of Technical Change in Capital-Resource Economies

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Abstract

We analyze a multi-sector growth model with directed technical change where man-made capital and exhaustible resources are essen- tial for production. The relative profitability of factor-specific inno- vations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that convergence to bal- anced growth implies zero capital-augmenting innovations: in the long run, the economy exhibits purely resource-augmenting technical change. This result provides sound microfoundations for the broad class of models of exogenous/endogenous growth where resource-aug- menting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.

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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 06/50.

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Length: 26 pages
Date of creation: Mar 2006
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Handle: RePEc:eth:wpswif:06-50

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Keywords: Endogenous Growth; Directed Technical Change; Exhaustible Resources; Sustainability;

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  19. Groth, C. & Schou, P., 2000. "Can Nonrenewable Resources Alleviate the Knife-Edge Character of Endogenous Growth," Papers 00-02, Carleton - School of Public Administration.
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