IDEAS home Printed from https://ideas.repec.org/p/eth/wpswif/06-50.html
   My bibliography  Save this paper

The Direction of Technical Change in Capital-Resource Economies

Author

Abstract

We analyze a multi-sector growth model with directed technical change where man-made capital and exhaustible resources are essen- tial for production. The relative profitability of factor-specific inno- vations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that convergence to bal- anced growth implies zero capital-augmenting innovations: in the long run, the economy exhibits purely resource-augmenting technical change. This result provides sound microfoundations for the broad class of models of exogenous/endogenous growth where resource-aug- menting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.

Suggested Citation

  • Corrado Di Maria & Simone Valente, 2006. "The Direction of Technical Change in Capital-Resource Economies," CER-ETH Economics working paper series 06/50, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:06-50
    as

    Download full text from publisher

    File URL: http://www.cer.ethz.ch/research/wp_06_50.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lucas Bretschger & Thomas M. Steger, 2004. "The dynamics of economic integration: Theory and policy," International Economics and Economic Policy, Springer, vol. 1(2), pages 119-134, January.
    2. Bretschger, Lucas & Steger, Thomas, 2013. "Globalization, The Volatility Of Intermediate Goods Prices, And Economic Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 17(2), pages 402-430, March.
    3. Moritz Schularick & Thomas M. Steger, 2006. "Does Financial Integration Spur Economic Growth? New Evidence from the First Era of Financial Globalization," CER-ETH Economics working paper series 06/46, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Bretschger, L. & Smulders, J.A., 2003. "Sustainability and Substitution of Exhaustible Natural Resources : How Resource Prices Affect Long-Term R&D Investments," Other publications TiSEM 2ae844f6-5ea5-45d4-963d-1, Tilburg University, School of Economics and Management.
    5. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1055-1089.
    6. Christian Groth & Poul Schou, 2002. "Can non-renewable resources alleviate the knife-edge character of endogenous growth?," Oxford Economic Papers, Oxford University Press, vol. 54(3), pages 386-411, July.
    7. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
    8. Karen Pittel & Amigues Jean-Pierre & Thomas Kuhn, 2005. "Endogenous growth and recycling : a material balance approach," CER-ETH Economics working paper series 05/37, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    9. Simone Valente, 2005. "Sustainable Development, Renewable Resources and Technological Progress," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 30(1), pages 115-125, January.
    10. Thomas M. Steger, 2003. "Economic Growth and Sectoral Change under Resource Reallocation Costs," CER-ETH Economics working paper series 03/30, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    11. Di Maria Corrado & Smulders Sjak A., 2005. "Trade Pessimists vs Technology Optimists: Induced Technical Change and Pollution Havens," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(2), pages 1-27, January.
    12. R. M. Solow, 1974. "Intergenerational Equity and Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 29-45.
    13. Trimborn, Timo & Koch, Karl-Josef & Steger, Thomas M., 2008. "Multidimensional Transitional Dynamics: A Simple Numerical Procedure," Macroeconomic Dynamics, Cambridge University Press, vol. 12(3), pages 301-319, June.
    14. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, March.
    15. Karen Pittel & Dirk T.G. Rübbelke, 2006. "Private provision of public goods: incentives for donations," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 33(6), pages 497-519, November.
    16. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
    17. Emmanuel M. Drandakis & Edmond S. Phelps, 1965. "A Model of Induced Invention, Growth and Distribution," Cowles Foundation Discussion Papers 186, Cowles Foundation for Research in Economics, Yale University.
    18. Thomas M. Steger, 2006. "On the Mechanics of Economic Convergence," German Economic Review, Verein für Socialpolitik, vol. 7(3), pages 317-337, August.
    19. Grimaud, Andre & Rouge, Luc, 2003. "Non-renewable resources and growth with vertical innovations: optimum, equilibrium and economic policies," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 433-453, March.
    20. Robert M. Solow, 1974. "The Economics of Resources or the Resources of Economics," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 12, pages 257-276, Palgrave Macmillan.
    21. Di Maria, C. & van der Werf, E.H., 2005. "Carbon Leakage Revisited : Unilateral Climate Policy with Directed Technical Change," Discussion Paper 2005-68, Tilburg University, Center for Economic Research.
    22. repec:bla:germec:v:7:y:2006:i::p:317-337 is not listed on IDEAS
    23. Bretschger, Lucas, 2005. "Economics of technological change and the natural environment: How effective are innovations as a remedy for resource scarcity?," Ecological Economics, Elsevier, vol. 54(2-3), pages 148-163, August.
    24. Joseph Stiglitz, 1974. "Growth with Exhaustible Natural Resources: Efficient and Optimal Growth Paths," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 123-137.
    25. Edward Barbier, 1999. "Endogenous Growth and Natural Resource Scarcity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 14(1), pages 51-74, July.
    26. Partha Dasgupta & Geoffrey Heal, 1974. "The Optimal Depletion of Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 3-28.
    27. Christian Bjørnskov & Axel Dreher & Justina Fischer, 2007. "The bigger the better? Evidence of the effect of government size on life satisfaction around the world," Public Choice, Springer, vol. 130(3), pages 267-292, March.
    28. Beatriz Gaitan & Terry L. Roe, 2005. "Natural Resource Abundance and Economic Growth in a Two Country World," DEGIT Conference Papers c010_052, DEGIT, Dynamics, Economic Growth, and International Trade.
    29. Sjak Smulders & Lucas Bretschger & Hannes Egli, 2005. "Economic growth and the diffusion of clean technologies : explaining environmental Kuznets," CER-ETH Economics working paper series 05/42, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    30. Corrado Maria & Edwin Werf, 2008. "Carbon leakage revisited: unilateral climate policy with directed technical change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(2), pages 55-74, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    2. Daubanes, Julien & Grimaud, André & Rougé, Luc, 2012. "Green Paradox and Directed Technical Change: The Effects of Subsidies to Clean R&D," LERNA Working Papers 12.20.377, LERNA, University of Toulouse.
    3. Pietro Peretto & Simone Valente, 2015. "Growth on a finite planet: resources, technology and population in the long run," Journal of Economic Growth, Springer, vol. 20(3), pages 305-331, September.
    4. Juergen Antony, 2007. "Depletion of Non-Renewable Resources and Endogenous Technical Change," Working Papers 027, Bavarian Graduate Program in Economics (BGPE).
    5. Pittel, Karen & Rübbelke, Dirk T. G., . "Energy supply and the sustainability of endogenous growth," Chapters in Economics,, University of Munich, Department of Economics.
    6. Karen Pittel & Lucas Bretschger, 2010. "The implications of heterogeneous resource intensities on technical change and growth," Canadian Journal of Economics, Canadian Economics Association, vol. 43(4), pages 1173-1197, November.
    7. Groth, Christian & Ricci, Francesco, 2011. "Optimal growth when environmental quality is a research asset," Research in Economics, Elsevier, vol. 65(4), pages 340-352, December.
    8. Simone Valente, 2009. "Accumulation Regimes in Dynastic Economies with Resource Dependence and Habit Formation," CER-ETH Economics working paper series 09/101, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    9. Simone Valente, 2007. "Human Capital, Resource Constraints and Intergenerational Fairness," CER-ETH Economics working paper series 07/68, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    10. Tobias Kronenberg, 2010. "Energy conservation, unemployment and the direction of technical change," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 9(1), pages 1-17, April.
    11. Francesco Ricci, 2007. "Resource Conservation and Directed R&D as Strategic Complements," Energy and Environmental Modeling 2007 24000052, EcoMod.
    12. Christian Groth, 2006. "A New-Growth Perspective on Non-Renewable Resources," Discussion Papers 06-26, University of Copenhagen. Department of Economics.
    13. Lucas Bretschger & Simone Valente, 2011. "International trade and net investment: theory and evidence," International Economics and Economic Policy, Springer, vol. 8(2), pages 197-224, June.
    14. Simone Valente, 2008. "Optimal Growth, Genuine Savings And Long‐Run Dynamics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(2), pages 210-226, May.
    15. Gerard van der Meijden & Sjak Smulders, 2014. "Carbon Lock-In: The Role of Expectations," Tinbergen Institute Discussion Papers 14-100/VIII, Tinbergen Institute, revised 14 Jul 2016.
    16. Valente, Simone, 2011. "Intergenerational externalities, sustainability and welfare—The ambiguous effect of optimal policies on resource depletion," Resource and Energy Economics, Elsevier, vol. 33(4), pages 995-1014.
    17. Manh Hung NGUYEN & Phu Nguyen-Van, 2008. "Growth and convergence in a model with renewable and nonrenewable resources," LERNA Working Papers 08.28.272, LERNA, University of Toulouse.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Valente, Simone, 2008. "Intergenerational transfers, lifetime welfare, and resource preservation," Environment and Development Economics, Cambridge University Press, vol. 13(1), pages 53-78, February.
    2. Simone Valente, 2005. "Genuine dissaving and optimal growth," CER-ETH Economics working paper series 05/38, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    3. Valente, Simone, 2006. "Trade, Envy and Growth: International Status Seeking in a Two-Country World," MPRA Paper 1095, University Library of Munich, Germany.
    4. Smulders, Sjak & Withagen, Cees, 2012. "Green growth -- lessons from growth theory," Policy Research Working Paper Series 6230, The World Bank.
    5. Bretschger, Lucas & Smulders, Sjak, 2012. "Sustainability and substitution of exhaustible natural resources," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 536-549.
    6. Growiec, Jakub & Schumacher, Ingmar, 2008. "On technical change in the elasticities of resource inputs," Resources Policy, Elsevier, vol. 33(4), pages 210-221, December.
    7. Li, George Yunxiong & Ascani, Andrea & Iammarino, Simona, 2024. "The material basis of modern technologies. A case study on rare metals," Research Policy, Elsevier, vol. 53(1).
    8. Antony, Jürgen & Klarl, Torben, 2022. "Poverty and sustainable development around the world during transition periods," Energy Economics, Elsevier, vol. 110(C).
    9. Simone Valente, 2007. "Human Capital, Resource Constraints and Intergenerational Fairness," CER-ETH Economics working paper series 07/68, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    10. Hou, Zheng & Roseta-Palma, Catarina & Ramalho, Joaquim José dos Santos, 2021. "Does directed technological change favor energy? Firm-level evidence from Portugal," Energy Economics, Elsevier, vol. 98(C).
    11. André, Francisco J. & Smulders, Sjak, 2014. "Fueling growth when oil peaks: Directed technological change and the limits to efficiency," European Economic Review, Elsevier, vol. 69(C), pages 18-39.
    12. Silva, Susana & Soares, Isabel & Afonso, Oscar, 2013. "Economic and environmental effects under resource scarcity and substitution between renewable and non-renewable resources," Energy Policy, Elsevier, vol. 54(C), pages 113-124.
    13. Hart, Rob, 2012. "The economics of natural resources: Understanding and predicting the evolution of supply and demand," Working Paper Series 2012:01, Swedish University of Agricultural Sciences, Department Economics.
    14. John Hassler & Per Krusell & Conny Olovsson, 2021. "Directed Technical Change as a Response to Natural Resource Scarcity," Journal of Political Economy, University of Chicago Press, vol. 129(11), pages 3039-3072.
    15. Gregory Casey, 2024. "Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(1), pages 192-228.
    16. Maciej Malaczewski, 2018. "Natural Resources As An Energy Source In A Simple Economic Growth Model," Bulletin of Economic Research, Wiley Blackwell, vol. 70(4), pages 362-380, October.
    17. Hooper, Emma, 2019. "Sustainable growth and financial markets in a natural resource-rich country," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 341-348.
    18. David I. Stern, 2010. "The Role of Energy in Economic Growth," CCEP Working Papers 0310, Centre for Climate & Energy Policy, Crawford School of Public Policy, The Australian National University.
    19. Sasaki, Hiroaki & Mino, Kazuo, 2024. "Effects of exhaustible resources and declining population on economic growth with Hotelling’s rule," International Review of Economics & Finance, Elsevier, vol. 94(C).
    20. Lafforgue, Gilles, 2008. "Stochastic technical change, non-renewable resource and optimal sustainable growth," Resource and Energy Economics, Elsevier, vol. 30(4), pages 540-554, December.

    More about this item

    Keywords

    Endogenous Growth; Directed Technical Change; Exhaustible Resources; Sustainability;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eth:wpswif:06-50. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/iwethch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.