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Finite resources and the world economy

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  • Hassler, John
  • Krusell, Per
  • Olovsson, Conny

Abstract

We build and evaluate a global macroeconomic model incorporating natural-resource scarcity. The model features low short-run substitutability between the natural resource and other inputs, while in the longer run endogenous directed technical change—allowing the economy to save on scarce resources—generates much higher substitutability, with rather stable cost shares. A nontrivial feature of the framework is secularly increasing resource use: initially, when the resource is abundant, much less is used of it, and as physical and human capital are accumulated, its use increases. The model is also able to generate highly volatile prices at higher frequencies.

Suggested Citation

  • Hassler, John & Krusell, Per & Olovsson, Conny, 2022. "Finite resources and the world economy," Journal of International Economics, Elsevier, vol. 136(C).
    • Handle: RePEc:eee:inecon:v:136:y:2022:i:c:s0022199622000241
    DOI: 10.1016/j.jinteco.2022.103592
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    2. Per Krusell & Tony Smith, 2022. "Climate Change Around the World," Cowles Foundation Discussion Papers 2342, Cowles Foundation for Research in Economics, Yale University.

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