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

37 Pages Posted: 10 May 2012

See all articles by Martin Stuermer

Martin Stuermer

International Monetary Fund (IMF) - Research Department

Gregor Schwerhoff

International Monetary Fund (IMF)

Date Written: April 2012

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.

Keywords: Non-Renewable Resources, Endogenous Growth, Extraction Technology

JEL Classification: O44, Q32, Q33

Suggested Citation

Stuermer, Martin and Schwerhoff, Gregor, Non-Renewable But Inexhaustible – Resources in an Endogenous Growth Model (April 2012). MPI Collective Goods Preprint, No. 2012/9, Available at SSRN: https://ssrn.com/abstract=2046502 or http://dx.doi.org/10.2139/ssrn.2046502

Martin Stuermer

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Gregor Schwerhoff (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.imf.org

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