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How substitutable is natural capital ?

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  • Markandya, Anil
  • Pedroso-Galinato, Suzette

Abstract

One of the recurring themes in the sustainability literature has been the legitimacy of using an economic framework to account for natural resources. This paper examines the potential for substituting between different inputs in the generation of income, where the inputs include natural resources such as land and energy resources. A nested constant elasticity of substitution (CES) production function is used to allow flexibility in the estimated elasticities of substitution. Also, with this specification, natural resources and other inputs are combined in different levels of the function, thus allowing for different levels of substitutability. Institutional and economic indicators are also incorporated in the production function estimated. Results show that the elasticities derived from functions involving land resources were generally around one or greater, implying a fairly high degree of substitutability. Furthermore, changes in trade openness and private sector investment have a statistically significant and direct relationship with income generation. No statistically significant relationship between income and any of the institutional indicators was found.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3803.

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Date of creation: 01 Jan 2006
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Handle: RePEc:wbk:wbrwps:3803

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Keywords: Economic Theory&Research; Inequality; Economic Growth; Banks&Banking Reform; Climate Change;

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Cited by:
  1. Brown, Peter R. & Nelson, Rohan & Jacobs, Brent & Kokic, Phil & Tracey, Jacquie & Ahmed, Mehnaz & DeVoil, Peter, 2010. "Enabling natural resource managers to self-assess their adaptive capacity," Agricultural Systems, Elsevier, Elsevier, vol. 103(8), pages 562-568, October.
  2. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2013. "Modelling the world economy at the 2050 horizon," PSE - Labex "OSE-Ouvrir la Science Economique", HAL hal-00975545, HAL.
  3. Yazid Dissou & Lilia Karnizova & Qian Sun, 2012. "Industry-level Econometric Estimates of Energy-capital-labour Substitution with a Nested CES Production Function," Working Papers, University of Ottawa, Department of Economics 1214E, University of Ottawa, Department of Economics.
  4. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2010. "The World Economy in 2050: a Tentative Picture," Working Papers 2010-27, CEPII research center.
  5. Enrica De Cian & Carlo Carraro & Lea Nicita, 2010. "Modeling Biased Technical Change. Implications for Climate Policy," Working Papers, Fondazione Eni Enrico Mattei 2010.4, Fondazione Eni Enrico Mattei.
  6. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2014. "The Great Shift : Macroeconomic projections For the World Economy at the 2050 Horizon," Working Papers, HAL hal-00962464, HAL.
  7. Koji Tokimatsu & Rieko Yasuoka & Masahiro Nishio & Kazuhiro Ueta, 2014. "A study on forecasting paths of genuine savings and wealth without and with carbon dioxide constraints: development of shadow price functions," Environment, Development and Sustainability, Springer, Springer, vol. 16(3), pages 723-745, June.
  8. Ha, Soo Jung & Lange, Ian & Lecca, Patrizio & Turner, Karen, 2012. "Econometric estimation of nested production functions and testing in a computable general equilibrium analysis of economy-wide rebound effec ts," Stirling Economics Discussion Papers, University of Stirling, Division of Economics 2012-08, University of Stirling, Division of Economics.
  9. Keting Shen & John Whalley, 2013. "Capital-Labor-Energy Substitution in Nested CES Production Functions for China," NBER Working Papers 19104, National Bureau of Economic Research, Inc.
  10. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2012. "The Great Shift: Macroeconomic projections for the world economy at the 2050 horizon," Working Papers 2012-03, CEPII research center.
  11. R. Turner, 2007. "Limits to CBA in UK and European environmental policy: retrospects and future prospects," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 37(1), pages 253-269, May.
  12. Carlo Carraro & Enrica De Cian, 2009. "Factor-Augmenting Technical Change: an Empirical Assessment," Working Papers 2009_29, Department of Economics, University of Venice "Ca' Foscari".
  13. Su, Xuanming & Zhou, Weisheng & Nakagami, Ken'Ichi & Ren, Hongbo & Mu, Hailin, 2012. "Capital stock-labor-energy substitution and production efficiency study for China," Energy Economics, Elsevier, Elsevier, vol. 34(4), pages 1208-1213.
  14. Karl-Göran Mäler, 2007. "Wealth and sustainable development: the role of David Pearce," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 37(1), pages 63-75, May.

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