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Non-Renewable but Inexhaustible – Resources in an Endogenous Growth Model

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  • Martin Stürmer

    ()
    (Institute for International Economic Policy (IIW), University of Bonn)

  • Gregor Schwerhoff

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn)

Abstract

This paper proposes an endogenous growth model with an essential non-renewable resource, where economic growth enables firms to invest in innovation in the extraction technology and to allocate more capital to resource extraction. Innovation in the extraction technology offsets the deterioration of ore qualities and keeps the production costs of the non-renewable resource constant. Aggregate output as well as production and use of the non-renewable resource increase exponentially. Our model explains the long-run trends of non-renewable resource prices and world production over more than 200 years. If historical trends in technological progress and in the deterioration of ore qualities continue, it is in the realm of possibility that non-renewable resources are de facto inexhaustible. Our results suggest that the industrialization in China and other emerging economies contributes to keeping non-renewable resource prices constant in the long run.

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Bibliographic Info

Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2012_09.

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Date of creation: May 2012
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Handle: RePEc:mpg:wpaper:2012_09

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Keywords: Non-Renewable Resources; Endogenous Growth; Extraction Technology;

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References

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  1. Slade, Margaret E., 1982. "Trends in natural-resource commodity prices: An analysis of the time domain," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 122-137, June.
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  16. Nordhaus, William D, 1974. "Resources as a Constraint on Growth," American Economic Review, American Economic Association, vol. 64(2), pages 22-26, May.
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Cited by:
  1. Martin Stuermer, 2013. "Industrialization and the demand for mineral commodities," Bonn Econ Discussion Papers bgse13_2013, University of Bonn, Germany.
  2. Bozo Draskovic & Jelena Minovic, 2012. "Determination and Compensation of External Costs in Serbia as Parameter of Sustainable Management," Book Chapters, Institute of Economic Sciences.

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