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Directed technical change as a response to natural-resource scarcity

Author

Listed:
  • Hassler, John

    (IIES, University of Gothenburg and CEPR)

  • Krusell, Per

    (IIES, CEPR and NBER)

  • Olovsson, Conny

    (Research Department, Central Bank of Sweden)

Abstract

How do markets economize on scarce natural resources? With an applica-tion to fossil energy, we emphasize technological change aimed at saving on the scarce resource. We develop quantitative macroeconomic theory as a tool for interpreting the past and thinking about the future. We argue, first, that aggre-gate U.S. data calls for a short-run substitution elasticity between energy and the capital/labor inputs that is near Leontief. Given this fact and an aggregate CES function, we note that energy-saving technical change took o right as the oil shocks hit in the 1970s. We rationalize this observation using a theory that views technical change as directed: it can be used to save on different inputs and, hence, the long-run substitutability between inputs becomes higher than Leontief. For our application, we estimate long-run dependence on fossil energy - measured by its factor share - to climb to a little below 10%; absent endogenous technical change directed toward energy-saving, it would go to 100%.

Suggested Citation

  • Hassler, John & Krusell, Per & Olovsson, Conny, 2019. "Directed technical change as a response to natural-resource scarcity," Working Paper Series 375, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0375
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    References listed on IDEAS

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    More about this item

    Keywords

    Sustainability; Natural resource scarcity; technological change; economic growth; energy;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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