Non-renewable resources, extraction technology, and endogenous growth

Gregor Schwerhoff and Martin Stuermer

No 1506, Working Papers from Federal Reserve Bank of Dallas

Abstract: We document that global resource extraction has strongly increased with economic growth, while prices have exhibited stable trends for almost all major non-renewable resources from 1700 to 2018. Why have resources not become scarcer as suggested by standard economic theory? We develop a theory of extraction technology, geology and growth grounded in stylized facts. Rising resource demand incentivises firms to invest in new technology to increase their economically extractable reserves. Prices remain constant because increasing returns from the geological distribution of resources offset diminishing returns in innovation. As a result, the aggregate growth rate depends partly on the geological distribution of resources. For example, a greater average concentration of a resource in the Earth's crust leads to more resource extraction, a lower price and a higher growth rate on the balanced growth path. Our paper provides economic and geologic microfoundations explaining why flat resource prices and increasing production are reasonable assumptions in economic models of climate change.

Keywords: Non-renewable resources; endogenous growth; extraction technology (search for similar items in EconPapers)
JEL-codes: O30 O41 Q30 Q43 Q54 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2015-12-29
New Economics Papers: this item is included in nep-ene, nep-env, nep-gro and nep-ino
Note: Revision of WP 1506, first published in December 2015.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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https://www.dallasfed.org/-/media/documents/research/papers/2015/wp1506.pdf Original Paper (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:1506

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DOI: 10.24149/wp1506r1

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