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&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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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2003.87.
Date of creation: Sep 2003
Date of revision:
Growth; Non-renewable resources; Substitution; Investment incentives; Endogenous technological change; Sustainability;
Other versions of this item:
- Lucas Bretschger & Sjak Smulders, 2004. "Sustainability and substitution of exhaustible natural resources. How resource prices affect long-term R&D-investments," CER-ETH Economics working paper series 03/26, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- 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.
- 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
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