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On Technical Change in the Elasticities of Resource Inputs

Author Info

Listed author(s):
  • Jakub, GROWIEC

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

  • Ingmar, SCHUMACHER

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

Abstract

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 exogneous technical change in the elasticity of subsstitution between these 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 case of no technical change, our results are close to those obtained by Dasgupta and Heal (1974). In the case of technical change helps obtain positive long-run production despite the depletion of non-renewable resources. In the biased technical change case, long-run 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 flow of non-renewable resources. We embed our production function in an optimal 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, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2006031.

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Length: 37
Date of creation: 01 Jun 2006
Handle: RePEc:ctl:louvec:2006031
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Keywords: Elasticity of substitution; Technical change; Biased technical change; Non-renewable resources; Renewable resources;

Other versions of this item:

Find related papers by JEL classification:
  • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
  • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
  • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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  1. R. M. Solow, 1974. "Intergenerational Equity and Exhaustible Resources," Review of Economic Studies, Oxford University Press, vol. 41(5), pages 29-45.
  2. Christian Scholz & Georg Ziemes, 1999. "Exhaustible Resources, Monopolistic Competition, and Endogenous Growth," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 13(2), pages 169-185, March.
  3. Christian Groth & Poul Schou, 2002. "Can non-renewable resources alleviate the knife-edge character of endogenous growth?," Oxford Economic Papers, Oxford University Press, vol. 54(3), pages 386-411, July.
  4. AMIGUES Jean-Pierre & MOREAUX Michel & RICCI Francesco, 2006. "Overcoming the Natural Resource Constraint Through Dedicated R&D Effort with Heterogenous Labor Supply," LERNA Working Papers 06.22.215, LERNA, University of Toulouse.
  5. 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.
  6. Miyagiwa, Kaz & Papageorgiou, Chris, 2007. "Endogenous aggregate elasticity of substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 2899-2919, September.
  7. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
  8. 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.
  9. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, 03.
  10. 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 340-346, May.
  11. de La Grandville, Olivier, 1989. "In Quest of the Slutsky Diamond," American Economic Review, American Economic Association, vol. 79(3), pages 468-481, June.
  12. Andre, Francisco J. & Cerda, Emilio, 2005. "On natural resource substitution," Resources Policy, Elsevier, vol. 30(4), pages 233-246, December.
  13. 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.
  14. Klump, Rainer & Preissler, Harald, 2000. " CES Production Functions and Economic Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 41-56, March.
  15. Growiec, Jakub & Schumacher, Ingmar, 2008. "On technical change in the elasticities of resource inputs," Resources Policy, Elsevier, vol. 33(4), pages 210-221, December.
  16. Bretschger, Lucas, 2005. "Economics of technological change and the natural environment: How effective are innovations as a remedy for resource scarcity?," Ecological Economics, Elsevier, vol. 54(2-3), pages 148-163, August.
  17. de La Grandville, Olivier, 1989. "Erratum [In Quest of the Slutsky Diamond]," American Economic Review, American Economic Association, vol. 79(5), pages 1307-1307, December.
  18. 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.
  19. Poul Schou, 2000. "Polluting Non-Renewable Resources and Growth," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(2), pages 211-227, June.
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Cited by:

  1. Alexander S. Skorobogatov, 2016. "Spatial Equilibrium Approach to the Analysis of Income Differentials Across Russian Cities," HSE Working papers WP BRP 149/EC/2016, National Research University Higher School of Economics.
  2. Growiec, Jakub & Schumacher, Ingmar, 2008. "On technical change in the elasticities of resource inputs," Resources Policy, Elsevier, vol. 33(4), pages 210-221, December.
  3. Jean-François Fagnart & Marc Germain, 2015. "Can the Energy Transition Be Smooth?," Working Papers 2015.04, FAERE - French Association of Environmental and Resource Economists.
  4. Pittel, Karen & Röpke, Luise, 2014. "The Implications of Energy Input Flexibility for a Resource Dependent Economy," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100321, Verein für Socialpolitik / German Economic Association.
  5. Voosholz, Frauke, 2014. "The influence of different production functions on modeling resource extraction and economic growth," CAWM Discussion Papers 72, University of Münster, Center of Applied Economic Research Münster (CAWM).
  6. Nguyen, Manh-Hung & Nguyen-Van, Phu, 2010. "Growth and convergence in a model with renewable and non-renewable resources: existence, transitional dynamics, and empirical evidence," TSE Working Papers 10-210, Toulouse School of Economics (TSE).
  7. Jouvet, Pierre-André & Schumacher, Ingmar, 2012. "Learning-by-doing and the costs of a backstop for energy transition and sustainability," Ecological Economics, Elsevier, vol. 73(C), pages 122-132.

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