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The Direction of Technical Change in Capital-Resource Economies

We analyze a multi-sector growth model with directed technical change where man-made capital and exhaustible resources are essen- tial for production. The relative profitability of factor-specific inno- vations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that convergence to bal- anced growth implies zero capital-augmenting innovations: in the long run, the economy exhibits purely resource-augmenting technical change. This result provides sound microfoundations for the broad class of models of exogenous/endogenous growth where resource-aug- menting 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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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 06/50.

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Length: 26 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:eth:wpswif:06-50
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  1. Simone Valente, 2004. "Sustainable Development: Renewable Resources and Technological Progress," CEIS Research Paper 54, Tor Vergata University, CEIS.
  2. Roe, Terry L. & Gaitan, Beatriz, 2005. "Natural Resource Abundance and Economic Growth in a Two Country World," Bulletins 12979, University of Minnesota, Economic Development Center.
  3. Di Maria, C. & van der Werf, E.H., 2005. "Carbon Leakage Revisited : Unilateral Climate Policy with Directed Technical Change," Discussion Paper 2005-68, Tilburg University, Center for Economic Research.
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  6. Grimaud, Andre & Rouge, Luc, 2003. "Non-renewable resources and growth with vertical innovations: optimum, equilibrium and economic policies," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 433-453, March.
  7. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change And Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1055-1089, November.
  8. Thomas M. Steger, 2006. "On the Mechanics of Economic Convergence," German Economic Review, Verein für Socialpolitik, vol. 7, pages 317-337, 08.
  9. Daron Acemoglu, 2001. "Directed Technical Change," NBER Working Papers 8287, National Bureau of Economic Research, Inc.
  10. repec:dgr:kubcen:200371 is not listed on IDEAS
  11. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  12. Bretschger, L. & Smulders, J.A., 2003. "Sustainability and Substitution of Exhaustible Natural Resources : How Resource Prices Affect Long-Term R&D Investments," Discussion Paper 2003-71, Tilburg University, Center for Economic Research.
  13. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
  14. 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.
  15. Karl-Josef Koch & Timo Trimborn & Thomas M. Steger, 2005. "Multi-Dimensional Transitional Dynamics: A Simple Numerical Procedure," Volkswirtschaftliche Diskussionsbeiträge 121-05, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  16. Lucas Bretschger & Thomas M. Steger, 2004. "The dynamics of economic integration : theory and policy," CER-ETH Economics working paper series 04/32, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  17. Christian Groth, 2000. "Can Nonrenewable Resources Alleviate the Knife-edge Character of Endogenous Growth?," Econometric Society World Congress 2000 Contributed Papers 1480, Econometric Society.
  18. Sjak Smulders & Lucas Bretschger & Hannes Egli, 2005. "Economic growth and the diffusion of clean technologies : explaining environmental Kuznets," CER-ETH Economics working paper series 05/42, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  19. Edward Barbier, 1999. "Endogenous Growth and Natural Resource Scarcity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 14(1), pages 51-74, July.
  20. Moritz Schularick & Thomas Steger, 2006. "Does Financial Integration Spur EconomicGrowth? New Evidence from the First Era of Financial Globalization," CESifo Working Paper Series 1691, CESifo Group Munich.
  21. Di Maria Corrado & Smulders Sjak A., 2005. "Trade Pessimists vs Technology Optimists: Induced Technical Change and Pollution Havens," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-27, January.
  22. Christian Bjørnskov & Axel Dreher & Justina A. V. Fischer, 2005. "The bigger the better? Evidence of the effect of government size on life satisfaction around the world," CER-ETH Economics working paper series 05/44, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  23. Karen Pittel & Amigues Jean-Pierre & Thomas Kuhn, 2005. "Endogenous growth and recycling : a material balance approach," CER-ETH Economics working paper series 05/37, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  24. Thomas M. Steger, 2003. "Economic Growth and Sectoral Change under Resource Reallocation Costs," CER-ETH Economics working paper series 03/30, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
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