IDEAS home Printed from https://ideas.repec.org/p/mpg/wpaper/2012_09.html
   My bibliography  Save this paper

Non-Renewable but Inexhaustible – Resources in an Endogenous Growth Model

Author

Listed:
  • Martin Stürmer

    (Institute for International Economic Policy (IIW), University of Bonn)

  • Gregor Schwerhoff

    (Max Planck Institute for Research on Collective Goods, Bonn)

Abstract

This paper proposes an endogenous growth model with an essential non-renewable resource, where economic growth enables firms to invest in innovation in the extraction technology and to allocate more capital to resource extraction. Innovation in the extraction technology offsets the deterioration of ore qualities and keeps the production costs of the non-renewable resource constant. Aggregate output as well as production and use of the non-renewable resource increase exponentially. Our model explains the long-run trends of non-renewable resource prices and world production over more than 200 years. If historical trends in technological progress and in the deterioration of ore qualities continue, it is in the realm of possibility that non-renewable resources are de facto inexhaustible. Our results suggest that the industrialization in China and other emerging economies contributes to keeping non-renewable resource prices constant in the long run.

Suggested Citation

  • Martin Stürmer & Gregor Schwerhoff, 2012. "Non-Renewable but Inexhaustible – Resources in an Endogenous Growth Model," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2012_09, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2012_09
    as

    Download full text from publisher

    File URL: http://www.coll.mpg.de/pdf_dat/2012_09online.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    2. Eyal Dvir & Ken Rogoff, 2009. "The Three Epochs of Oil," Boston College Working Papers in Economics 706, Boston College Department of Economics.
    3. Bretschger, L. & Smulders, J.A., 2003. "Sustainability and Substitution of Exhaustible Natural Resources : How Resource Prices Affect Long-Term R&D Investments," Other publications TiSEM 2ae844f6-5ea5-45d4-963d-1, Tilburg University, School of Economics and Management.
    4. Lee, Junsoo & List, John A. & Strazicich, Mark C., 2006. "Non-renewable resource prices: Deterministic or stochastic trends?," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 354-370, May.
    5. Radetzki, Marian, 2009. "Seven thousand years in the service of humanity--the history of copper, the red metal," Resources Policy, Elsevier, vol. 34(4), pages 176-184, December.
    6. Slade, Margaret E., 1982. "Trends in natural-resource commodity prices: An analysis of the time domain," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 122-137, June.
    7. 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.
    8. Bartos, P. J., 2002. "SX-EW copper and the technology cycle," Resources Policy, Elsevier, vol. 28(3-4), pages 85-94.
    9. Tilton, John E. & Lagos, Gustavo, 2007. "Assessing the long-run availability of copper," Resources Policy, Elsevier, vol. 32(1-2), pages 19-23.
    10. Volker Steinbach & Friedrich-W. Wellmer, 2010. "Consumption and Use of Non-Renewable Mineral and Energy Raw Materials from an Economic Geology Point of View," Sustainability, MDPI, vol. 2(5), pages 1-23, May.
    11. John Livernois, 2009. "On the Empirical Significance of the Hotelling Rule," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(1), pages 22-41, Winter.
    12. Lucas Bretschger & Sjak Smulders, 2007. "Sustainable Resource Use and Economic Dynamics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(1), pages 1-13, January.
    13. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
    14. Cynthia Lin, C.-Y. & Wagner, Gernot, 2007. "Steady-state growth in a Hotelling model of resource extraction," Journal of Environmental Economics and Management, Elsevier, vol. 54(1), pages 68-83, July.
    15. Nordhaus, William D, 1974. "Resources as a Constraint on Growth," American Economic Review, American Economic Association, vol. 64(2), pages 22-26, May.
    16. Managi, Shunsuke & Opaluch, James J. & Jin, Di & Grigalunas, Thomas A., 2004. "Technological change and depletion in offshore oil and gas," Journal of Environmental Economics and Management, Elsevier, vol. 47(2), pages 388-409, March.
    17. Geoffrey Heal, 1976. "The Relationship Between Price and Extraction Cost for a Resource with a Backstop Technology," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 371-378, Autumn.
    18. Robert S. Pindyck, 1999. "The Long-Run Evolutions of Energy Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-27.
    19. Pierre Lasserre & Pierre Ouellette, 1988. "On Measuring and Comparing Total Factor Productivities in Extractive and Non-extractive Sectors," Canadian Journal of Economics, Canadian Economics Association, vol. 21(4), pages 826-834, November.
    20. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
    21. Tahvonen, Olli & Salo, Seppo, 2001. "Economic growth and transitions between renewable and nonrenewable energy resources," European Economic Review, Elsevier, vol. 45(8), pages 1379-1398, August.
    22. Gordon, R.B. & Bertram, M. & Graedel, T.E., 2007. "On the sustainability of metal supplies: A response to Tilton and Lagos," Resources Policy, Elsevier, vol. 32(1-2), pages 24-28.
    23. Christian Groth, 2006. "A New-Growth Perspective on Non-Renewable Resources," Discussion Papers 06-26, University of Copenhagen. Department of Economics.
    24. Fourgeaud, C. & Lenclud, B. & Michel, Ph., 1982. "Technological renewal of natural resource stocks," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 1-36, November.
    25. Acemoglu, Daron, 2012. "Introduction to economic growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 545-550.
    26. Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Macías, Arturo & Matilla-García, Mariano, 2015. "Net energy analysis in a Ramsey–Hotelling growth model," Energy Policy, Elsevier, vol. 86(C), pages 562-573.
    2. Voosholz, Frauke, 2014. "The influence of different production functions on modeling resource extraction and economic growth," CAWM Discussion Papers 72, University of Münster, Münster Center for Economic Policy (MEP).
    3. Stuermer, Martin, 2017. "Industrialization and the demand for mineral commodities," Journal of International Money and Finance, Elsevier, vol. 76(C), pages 16-27.
    4. Kalkuhl, Matthias & Brecha, Robert J., 2013. "The carbon rent economics of climate policy," Energy Economics, Elsevier, vol. 39(C), pages 89-99.
    5. Bozo Draskovic & Jelena Minovic, 2012. "Determination and Compensation of External Costs in Serbia as Parameter of Sustainable Management," Book Chapters, in: Paulino Teixeira & António Portugal Duarte & Srdjan Redzepagic & Dejan Eric (ed.), European Integration Process in Western Balkan Countries, edition 1, volume 1, chapter 19, pages 363-388, Institute of Economic Sciences.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gregor Schwerhoff & Martin Stuermer, 2015. "Non-renewable resources, extraction technology, and endogenous growth," Working Papers 1506, Federal Reserve Bank of Dallas.
    2. Stuermer, Martin & Schwerhoff, Gregor, 2013. "Technological change in resource extraction and endogenous growth," Bonn Econ Discussion Papers 12/2013, University of Bonn, Bonn Graduate School of Economics (BGSE).
    3. Stuermer, Martin, 2018. "150 Years Of Boom And Bust: What Drives Mineral Commodity Prices?," Macroeconomic Dynamics, Cambridge University Press, vol. 22(3), pages 702-717, April.
    4. Hart, Rob, 2012. "The economics of natural resources: Understanding and predicting the evolution of supply and demand," Working Paper Series 2012:01, Swedish University of Agricultural Sciences, Department Economics.
    5. Casey, Gregory, "undated". "Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259959, Agricultural and Applied Economics Association.
    6. Xiaoyi Mu and Haichun Ye, 2015. "Small Trends and Big Cycles in Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    7. Bai, Yiyi & Okullo, Samuel J., 2018. "Understanding oil scarcity through drilling activity," Energy Economics, Elsevier, vol. 69(C), pages 261-269.
    8. Gronwald, Marc, 2012. "A characterization of oil price behavior — Evidence from jump models," Energy Economics, Elsevier, vol. 34(5), pages 1310-1317.
    9. Hart, Rob, 2016. "Non-renewable resources in the long run," Journal of Economic Dynamics and Control, Elsevier, vol. 71(C), pages 1-20.
    10. Marc Gronwald & Johannes Mayr & Sultan Orazbayev, 2009. "Estimating the effects of oil price shocks on the Kazakh economy," ifo Working Paper Series 81, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    11. Aleksandar Zaklan & Jan Abrell & Anne Neumann, 2011. "Stationarity Changes in Long-Run Fossil Resource Prices: Evidence from Persistence Break Testing," Discussion Papers of DIW Berlin 1152, DIW Berlin, German Institute for Economic Research.
    12. Johannes Pfeiffer, 2017. "Fossil Resources and Climate Change – The Green Paradox and Resource Market Power Revisited in General Equilibrium," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 77.
    13. André, Francisco J. & Smulders, Sjak, 2014. "Fueling growth when oil peaks: Directed technological change and the limits to efficiency," European Economic Review, Elsevier, vol. 69(C), pages 18-39.
    14. Zhu, Yongguang & Xu, Deyi & Ali, Saleem H. & Cheng, Jinhua, 2021. "A hybrid assessment model for mineral resource availability potentials," Resources Policy, Elsevier, vol. 74(C).
    15. Cynthia Lin, C.-Y. & Wagner, Gernot, 2007. "Steady-state growth in a Hotelling model of resource extraction," Journal of Environmental Economics and Management, Elsevier, vol. 54(1), pages 68-83, July.
    16. Margaret E. Slade & Henry Thille, 2009. "Whither Hotelling: Tests of the Theory of Exhaustible Resources," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 239-259, September.
    17. Hart, Rob & Spiro, Daniel, 2011. "The elephant in Hotelling's room," Energy Policy, Elsevier, vol. 39(12), pages 7834-7838.
    18. Gregor Schwerhoff & Ottmar Edenhofer & Marc Fleurbaey, 2020. "Taxation Of Economic Rents," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 398-423, April.
    19. Zaklan, Aleksandar & Abrell, Jan & Neumann, Anne, 2016. "Stationarity changes in long-run energy commodity prices," Energy Economics, Elsevier, vol. 59(C), pages 96-103.
    20. Franco Ruzzenenti & Andreas A. Papandreou, 2015. "Effects of fossil fuel prices on the transition to a low-carbon economy," Working papers wpaper89, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.

    More about this item

    Keywords

    Non-Renewable Resources; Endogenous Growth; Extraction Technology;
    All these keywords.

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mpg:wpaper:2012_09. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marc Martin (email available below). General contact details of provider: https://edirc.repec.org/data/mppggde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.