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Endogenous growth with a limited fossil fuel extraction capacity

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  • Gilbert Kollenbach

Abstract

Campbell (1980) and following authors have discussed a limited resource extraction capacity as an augmentation of the well‐known Hotelling model. We integrate a limited extraction capacity and related investments in the endogenous growth model of Tsur and Zemel (2005) to study its effect on economic development. The capacity constraint gives rise to three effects. On the one hand, higher energy costs and the reallocation of production towards capacity investments decrease production available for consumption, research and/or capital investments (energy costs and reallocation effect). On the other hand, research investments may increase, which boosts available production (research effect). Depending on the capital endowment and the strength of the effects, long‐run consumption may be boosted or depressed. In particular, the capacity constraint may render everlasting consumption growth non‐optimal in a resource‐rich economy. Furthermore, we find that capacity investments may be postponed to later points in time if the capital endowment is high. Croissance endogène quand on a une capacité limitée d'extraction de combustibles fossiles. Campbell (1980) et d'autres auteurs par la suite ont discuté la capacité limitée d'extraction d'une ressource en tant qu'enrichissement du modèle bien connu d'Hotelling. L'auteur intègre la capacité limitée d'extraction et les investissements reliés dans le modèle de croissance endogène de Trur et Zemel (2005) pour étudier ses effets sur le développement économique. La contrainte de capacité donne lieu à trois effets. D'abord, des coûts plus élevés pour l'énergie et la réallocation de la production vers des investissements pour accroître la capacité vont réduire la production disponible pour la consommation, la recherche et/ou l'investissement en capital (coûts de l'énergie et effet de réallocation). Ensuite l'investissement en recherche peut s'accroître, ce qui augmente la production disponible (effet de recherche). Selon la dotation en capital et la force des divers effets, la consommation à long terme peut croître ou décroître. En particulier, la contrainte de capacité peut rendre la croissance perpétuelle de la consommation à long terme non‐optimale dans une économie riche en ressources. En particulier, on montre que les investissements en capacité peuvent être reportés à plus tard si la dotation en capital est élevée.

Suggested Citation

  • Gilbert Kollenbach, 2017. "Endogenous growth with a limited fossil fuel extraction capacity," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(1), pages 233-272, February.
  • Handle: RePEc:wly:canjec:v:50:y:2017:i:1:p:233-272
    DOI: 10.1111/caje.12256
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    References listed on IDEAS

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    Cited by:

    1. Stijepic, Denis, 2017. "On the system-theoretical foundations of non-economic parameter constancy assumptions in economic growth modeling," MPRA Paper 82699, University Library of Munich, Germany.
    2. Aner Martinez-Soto & Alejandra Calabi-Floody & Gonzalo Valdes-Vidal & Andrea Hucke & Camila Martinez-Toledo, 2023. "Life Cycle Assessment of Natural Zeolite-Based Warm Mix Asphalt and Reclaimed Asphalt Pavement," Sustainability, MDPI, vol. 15(2), pages 1-12, January.
    3. Gilbert Kollenbach, 2022. "International Environmental Agreements and Black Technology," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(3), pages 601-624, July.
    4. Achim Hagen & Gilbert Kollenbach, 2024. "The Political Economy of Stranded Assets: Climate Policies, Investments and the Role of Elections," Berlin School of Economics Discussion Papers 0033, Berlin School of Economics.
    5. Gilbert Kollenbach, 2019. "Unilateral climate policy and the green paradox: Extraction costs matter," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(3), pages 1036-1083, August.

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