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On technical change in the elasticities of resource inputs

  • GROWIEC, Jakub
  • SCHUMACHER, Ingmar

This article considers an economy whose production function takes both renewable and non-renewable resources as inputs. We extend the current literature by allowing for exogenous technical change in the elasticity of substitution betweenthese two types of resources. In addition, we study the consequences of biased technical change which alters the resources? relative productivities. We derive long-run asymptotic results, which we use to compare several cases. In the benchmark caseof no technical change, our results are close to those obtained by Dasgupta and Heal (1974). In the case of technical change in the elasticity of substitution, we observe that this kind of technical change helps obtain positive long-run production despite the depletion of non-renewable resources. In the biased technical change case, longrun production is only possible either if non-renewable resources are non-essential or if biased technical change is quick enough to compensate for the decreasing flowof non-renewable resources. We embed our production function in an optimal growth model and study its dynamics. As a steady state (or a balanced growth path) is only attainable as time goes to infinity, we resort to numerical simulations to convey what is happening during the short and medium run. Our results provide new considerations for the debate on natural resources. We suggest that technical change should be directed to the resource which is most important for production.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006063.

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Date of creation: 00 Jun 2006
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Handle: RePEc:cor:louvco:2006063
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  1. de La Grandville, Olivier, 1989. "In Quest of the Slutsky Diamond," American Economic Review, American Economic Association, vol. 79(3), pages 468-81, June.
  2. Kaz Miyagiwa & Chris Papageorgiou, 2007. "Endogenous Aggregate Elasticity of Substitution," Emory Economics 0707, Department of Economics, Emory University (Atlanta).
  3. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
  4. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  5. Cleveland, Cutler J. & Ruth, Matthias, 1997. "When, where, and by how much do biophysical limits constrain the economic process?: A survey of Nicholas Georgescu-Roegen's contribution to ecological economics," Ecological Economics, Elsevier, vol. 22(3), pages 203-223, September.
  6. Lucas Bretschger, 2003. "Economics of technological change and the natural environment: how effective are innovations as a remedy for resource scarcity?," CER-ETH Economics working paper series 03/27, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich, revised Jun 2004.
  7. Jean-Pierre Amigues & Michel Moreaux & Francesco Ricci, 2006. "Overcoming the natural resource constraint through dedicated R&D effort with heterogenous labor supply," THEMA Working Papers 2006-16, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  8. Christian Groth, 2000. "Can Nonrenewable Resources Alleviate the Knife-edge Character of Endogenous Growth?," Econometric Society World Congress 2000 Contributed Papers 1480, Econometric Society.
  9. Grimaud, Andre & Rouge, Luc, 2005. "Polluting non-renewable resources, innovation and growth: welfare and environmental policy," Resource and Energy Economics, Elsevier, vol. 27(2), pages 109-129, June.
  10. Poul Schou, 2000. "Polluting Non-Renewable Resources and Growth," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(2), pages 211-227, June.
  11. Yuhn, Ky-hyang, 1991. "Economic Growth, Technical Change Biases, and the Elasticity of Substitution: A Test of the De La Grandville Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 340-46, May.
  12. GROWIEC, Jakub & SCHUMACHER, Ingmar, 2006. "On technical change in the elasticities of resource inputs," CORE Discussion Papers 2006063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. de La Grandville, Olivier, 1989. "Erratum [In Quest of the Slutsky Diamond]," American Economic Review, American Economic Association, vol. 79(5), pages 1307, December.
  14. Heal, Geoffrey M., 1993. "The optimal use of exhaustible resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 18, pages 855-880 Elsevier.
  15. Klump, Rainer & Preissler, Harald, 2000. " CES Production Functions and Economic Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 41-56, March.
  16. Christian Scholz & Georg Ziemes, 1999. "Exhaustible Resources, Monopolistic Competition, and Endogenous Growth," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 13(2), pages 169-185, March.
  17. Andre, Francisco J. & Cerda, Emilio, 2005. "On natural resource substitution," Resources Policy, Elsevier, vol. 30(4), pages 233-246, December.
  18. Groth Christian, 2004. "Strictly Endogenous Growth with Non-renewable Resources Implies an Unbounded Growth Rate," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-15, May.
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