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The Direction of Technical Change in Capital-Resource Economies

  • Di Maria, Corrado
  • Valente, Simone

We analyze a multi-sector growth model with directed technical change where man-made capital and exhaustible resources are essential for production. The relative profitability of factor-specific innovations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that convergence to balanced 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-augmenting 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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File URL: https://mpra.ub.uni-muenchen.de/1040/1/MPRA_paper_1040.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1040.

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Date of creation: 07 Mar 2006
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Handle: RePEc:pra:mprapa:1040
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