Hicks meets Hotelling : the direction of technical change in capital–resource economies
AbstractWe analyze a two-sector growth model with directed technical change where man-made capital and exhaustible resources are essential for production. The relative profitability of factor-specific innovations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that any balanced growth equilibrium features purely resource-augmenting technical change. This result is compatible with alternative specifications of preferences and innovation technologies, as it hinges on the interplay between productive efficiency in the final sector, and the Hotelling rule characterizing the efficient depletion path for the exhaustible resource. Our result provides sound micro-foundations for the broad class of models of exogenous/endogenous growth where resource-augmenting 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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Bibliographic InfoPaper provided by University College Dublin in its series Open Access publications from University College Dublin with number urn:hdl:10197/864.
Date of creation: Dec 2008
Date of revision:
Publication status: Published in Environment and Development Economics (2008-12) v.13, p.691-717
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Web page: http://www.ucd.ie
Economic development--Mathematical models; Technological innovations; Nonrenewable natural resources;
Other versions of this item:
- Di Maria, Corrado & Valente, Simone, 2008. "Hicks meets Hotelling: the direction of technical change in capital–resource economies," Environment and Development Economics, Cambridge University Press, vol. 13(06), pages 691-717, December.
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