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R&D Policy in Economies with Endogenous Growth and Non-Renewable Resources

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Author Info

  • Bety Agnany

    ()
    (Department of Economic Theory and Economic History, University of Granada.)

  • Maria Jose Gutierrez

    (DFAEII - The University of the Basque Country)

  • Amaia Iza

    (DFAEII - The University of the Basque Country)

Abstract

The aim of this paper is to analyze how active R&D policies affect the growth rate of an economy with endogenous growth and non-renewable resources. We know from Scholz and Ziemens (1999) and Groth (2006) that in infinitely lived agents (ILA) economies, any active R&D policy increases the growth rate of the economy. To see if this result also appears in economies with finite lifetime agents, we developed an endogenous growth overlapping generations (OLG) economy à la Diamond which uses non-renewable resources as essential inputs in final good’s production. We show analytically that a sufficient condition guaranteeing that an active R&D policy increases the growth rate of the economy actually implies a reduction of the use of the non-renewable resources. Numerically we show that in economies with low intertemporal elasticity of substitution (IES), active R&D policies lead the economy to increase the depletion of non-renewable resources. Nevertheless, we find that active R&D policies always imply increases in the endogenous growth rate, in both scenarios. Furthermore, when the IES coefficient is lower (greater) than one, active R&D policies affect the growth rate of the economy in the ILA more (less) than in OLG economies.

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File URL: http://www.ugr.es/~teoriahe/RePEc/gra/wpaper/thepapers07_09.pdf
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Bibliographic Info

Paper provided by Department of Economic Theory and Economic History of the University of Granada. in its series ThE Papers with number 07/09.

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Length: 37 pages
Date of creation: 31 Dec 2007
Date of revision:
Handle: RePEc:gra:wpaper:07/09

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Keywords: endogenous growth; R&D; non-renewable resources; overlapping generations; infinitely lived agents; balanced growth path.;

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References

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  1. Edward Barbier, 1999. "Endogenous Growth and Natural Resource Scarcity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 14(1), pages 51-74, July.
  2. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Growth with Many Consumers," Discussion Papers 518, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  4. Solow, Robert M, 1986. " On the Intergenerational Allocation of Natural Resources," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 141-49.
  5. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  6. Cordoba, Juan Carlos & Ripoll, Marla, 2010. "Endogenous Tfp and Cross-Country Income Differences," Staff General Research Papers 32116, Iowa State University, Department of Economics.
  7. Mourmouras, Alex, 1993. "Conservationist government policies and intergenerational equity in an overlapping generations model with renewable resources," Journal of Public Economics, Elsevier, vol. 51(2), pages 249-268, June.
  8. Christian Groth, 2006. "A New-Growth Perspective on Non-Renewable Resources," Discussion Papers 06-26, University of Copenhagen. Department of Economics.
  9. King, Robert G & Rebelo, Sergio T, 1993. "Transitional Dynamics and Economic Growth in the Neoclassical Model," American Economic Review, American Economic Association, vol. 83(4), pages 908-31, September.
  10. 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.
  11. Yuan-Hung Hsuku, 2007. "Dynamic consumption and asset allocation with derivative securities," Quantitative Finance, Taylor & Francis Journals, vol. 7(2), pages 137-149.
  12. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
  13. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
  14. Gutiérrez Huerta, María José & Iza Padilla, María Amaya & Agnani, Betty, 2004. "Growth in Overlapping Generation Economies with Non-Renewable Resources," DFAEII Working Papers 2002-22, University of the Basque Country - Department of Foundations of Economic Analysis II.
  15. R. M. Solow, 1973. "Intergenerational Equity and Exhaustable Resources," Working papers 103, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Heal, G., 1990. "The Optimal Use Of Exhaustible Resources," Papers fb-_90-10, Columbia - Graduate School of Business.
  17. Christian Groth, 2000. "Can Nonrenewable Resources Alleviate the Knife-edge Character of Endogenous Growth?," Econometric Society World Congress 2000 Contributed Papers 1480, Econometric Society.
  18. Beaudry, Paul & van Wincoop, Eric, 1996. "The Intertemporal Elasticity of Substitution: An Exploration Using a US Panel of State Data," Economica, London School of Economics and Political Science, vol. 63(251), pages 495-512, August.
  19. Olson, Lars J. & Knapp, Keith C., 1997. "Exhaustible Resource Allocation in an Overlapping Generations Economy," Journal of Environmental Economics and Management, Elsevier, vol. 32(3), pages 277-292, March.
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