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Endogenous growth with a limited fossil fuel extraction capacity

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  • Gilbert Kollenbach

Abstract

Campbell (1980) and following authors have discussed a limited resource extraction capacity as an augmentation of the well-known Hotelling model. We integrate a limited extraction capacity and related investments in the endogenous growth model of Tsur and Zemel (2005) to study its effect on economic development. The capacity constraint gives rise to three effects. On the one hand, higher energy costs and the reallocation of production towards capacity investments decrease production available for consumption, research and/or capital investments (energy costs and reallocation effect). On the other hand, research investments may increase, which boosts available production (research effect). Depending on the capital endowment and the strength of the effects, long-run consumption may be boosted or depressed. In particular, the capacity constraint may render everlasting consumption growth non-optimal in a resource-rich economy. Furthermore, we find that capacity investments may be postponed to later points in time if the capital endowment is high.

Suggested Citation

  • Gilbert Kollenbach, 2017. "Endogenous growth with a limited fossil fuel extraction capacity," Canadian Journal of Economics, Canadian Economics Association, vol. 50(1), pages 233-272, February.
    • Handle: RePEc:cje:issued:v:50:y:2017:i:1:p:233-272
    DOI: 10.1111/caje.12256
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    Cited by:

    1. Kollenbach, Gilbert, 2017. "On the optimal accumulation of renewable energy generation capacity," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 157-179.
    2. Gilbert Kollenbach, 2022. "International Environmental Agreements and Black Technology," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(3), pages 601-624, July.
    3. Stijepic, Denis, 2017. "On the system-theoretical foundations of non-economic parameter constancy assumptions in economic growth modeling," MPRA Paper 82699, University Library of Munich, Germany.
    4. Aner Martinez-Soto & Alejandra Calabi-Floody & Gonzalo Valdes-Vidal & Andrea Hucke & Camila Martinez-Toledo, 2023. "Life Cycle Assessment of Natural Zeolite-Based Warm Mix Asphalt and Reclaimed Asphalt Pavement," Sustainability, MDPI, vol. 15(2), pages 1-12, January.
    5. Gilbert Kollenbach, 2019. "Unilateral climate policy and the green paradox: Extraction costs matter," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(3), pages 1036-1083, August.

    More about this item

    JEL classification:

    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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