Non-Renewable but Inexhaustible – Resources in an Endogenous Growth Model
AbstractThis 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 InfoPaper 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.
Date of creation: May 2012
Date of revision:
Non-Renewable Resources; Endogenous Growth; Extraction Technology;
Find related papers by JEL classification:
- O44 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
- Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
- Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-DGE-2012-05-22 (Dynamic General Equilibrium)
- NEP-ENE-2012-05-22 (Energy Economics)
- NEP-ENV-2012-05-22 (Environmental Economics)
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