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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

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    File URL: http://www.coll.mpg.de/pdf_dat/2012_09online.pdf
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    References listed on IDEAS

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    Citations

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    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, Center of Applied Economic Research Münster (CAWM).
    3. Kalkuhl, Matthias & Brecha, Robert J., 2013. "The carbon rent economics of climate policy," Energy Economics, Elsevier, vol. 39(C), pages 89-99.
    4. Martin Stuermer, 2013. "Industrialization and the demand for mineral commodities," Bonn Econ Discussion Papers bgse13_2013, University of Bonn, Germany.
    5. Bozo Draskovic & Jelena Minovic, 2012. "Determination and Compensation of External Costs in Serbia as Parameter of Sustainable Management," Book Chapters, Institute of Economic Sciences.

    More about this item

    Keywords

    Non-Renewable Resources; Endogenous Growth; Extraction Technology;

    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)

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