Non-Renewable Resources, Extraction Technology, and Endogenous Growth

74 Pages Posted: 11 Jan 2016 Last revised: 29 Apr 2020

See all articles by Martin Stuermer

Martin Stuermer

Federal Reserve Bank of Dallas, Research Department

Gregor Schwerhoff

Mercator Research Institute on Global Commons and Climate Change (MCC)

Date Written: 2015-12-29

Abstract

We document that global resource extraction has strongly increased with economic growth, while prices have exhibited stable trends for almost all major non-renewable resources from 1700 to 2018. Why have resources not become scarcer as suggested by standard economic theory? We develop a theory of extraction technology, geology and growth grounded in stylized facts. Rising resource demand incentivises firms to invest in new technology to increase their economically extractable reserves. Prices remain constant because increasing returns from the geological distribution of resources offset diminishing returns in innovation. As a result, the aggregate growth rate depends partly on the geological distribution of resources. For example, a greater average concentration of a resource in the Earth's crust leads to more resource extraction, a lower price and a higher growth rate on the balanced growth path. Our paper provides economic and geologic microfoundations explaining why flat resource prices and increasing production are reasonable assumptions in economic models of climate change.

Keywords: Non-renewable resources, endogenous growth, extraction technology

JEL Classification: O30, O41, Q30, Q43, Q54

Suggested Citation

Stuermer, Martin and Schwerhoff, Gregor, Non-Renewable Resources, Extraction Technology, and Endogenous Growth (2015-12-29). FRB of Dallas Working Paper No. 1506, Available at SSRN: https://ssrn.com/abstract=2713048 or http://dx.doi.org/10.24149/wp1506r1

Martin Stuermer (Contact Author)

Federal Reserve Bank of Dallas, Research Department ( email )

2200 N. Pearl St
Dallas, TX 75201
United States

HOME PAGE: http://https://sites.google.com/site/mstuermer1/

Gregor Schwerhoff

Mercator Research Institute on Global Commons and Climate Change (MCC) ( email )

Torgauer Stra├če 12-15
Berlin, 10829
Germany

HOME PAGE: http://www.mcc-berlin.net/ueber-uns/team/schwerhoff-gregor.html

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