Sustainability and Substitution of Exhaustible Natural Resources: How Resource Prices Affect Long-Term R&D Investments

36 Pages Posted: 25 Nov 2003

See all articles by Lucas Bretschger

Lucas Bretschger

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Sjak Smulders

Tilburg University - Tilburg University School of Economics and Management; University of Calgary - Department of Economics

Date Written: Settember 2003

Abstract

Traditional resource economics has been criticised for assuming too high elasticities of substitution, not observing material balance principles and relying too much on planner solutions to obtain long-term growth. By analysing a multi-sector R&D-based endogenous growth model with exhaustible natural resources, labour, knowledge, and physical capital as inputs, the present paper addresses this critique. We study transitional dynamics and the long-term growth path and identify conditions under which firms keep spending on research and development. We demonstrate that long-run growth can be sustained under free market conditions even when elasticities of substitution between capital and resources are low and the supply of physical capital is limited, which seems to be crucial for today's sustainability debate.

Keywords: Growth, Non-renewable resources, Substitution, Investment incentives, Endogenous technological change, Sustainability

JEL Classification: Q20, Q30, O41, O33

Suggested Citation

Bretschger, Lucas and Smulders, Jacobus (Sjak) A., Sustainability and Substitution of Exhaustible Natural Resources: How Resource Prices Affect Long-Term R&D Investments (Settember 2003). FEEM Working Paper No. 87.2003. Available at SSRN: https://ssrn.com/abstract=465161 or http://dx.doi.org/10.2139/ssrn.465161

Lucas Bretschger (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Jacobus (Sjak) A. Smulders

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2920 (Phone)
+31 13 466 3042 (Fax)

HOME PAGE: http://www.uvt.nl/webwijs/english/show.html?anr=801585&lang=en

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

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