Sustainability and substitution of exhaustible natural resources: how resource prices affect long-term R&D-investments

Lucas Bretschger and Sjak Smulders ()

No 71, Discussion Paper from Tilburg University, Center for Economic Research

Abstract: Traditional resource economics has been criticised for assuming too high elasticities of substitution, not observing material balance principles and relying too much on planner solutions to obtain long-term growth. By analysing a multi-sector R&D based endogenous growth model with exhaustible natural resources, labour, knowledge, and physical capital as inputs, the present paper addresses this critique. We study transitional dynamics and the long-term growth path and identify conditions under which firms keep spending on research and development. We demonstrate that long-run growth can be sustained under free market conditions even when elasticities of substitution between capital and resources are low and the supply of physical capital is limited, which seems to be crucial for today's sustainability debate.

JEL-codes: Q20 Q30 O41 O33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-ino
Date: 2003
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Related works:
Working Paper: Sustainability and substitution of exhaustible natural resources. How resource prices affect long-term R&D-investments (2004)
Working Paper: Sustainability and Substitution of Exhaustible Natural Resources. How resource prices affect long-term R&D investments (2003)
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:kubcen:200371

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