Natural resource scarcity and long-run development: central mechanisms when conditions are seemingly unfavourable

Lucas Bretschger

No 03/29, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: Using a dynamic model with non-renewable natural resources and endogenous knowledge creation, the paper analyses economic development under conditions which are generally considered as most unfavourable. We assume poor substitution between primary input factors, positive population growth and a limited supply of materials in the static part of the framework, as well as natural resources being an essential input into R&D, and constant or decreasing returns to innovative activities in the dynamic part. It is shown that there is an inverse relationship between input substitution and growth-enhancing sectoral change and that labour supply supports economic dynamics through the knowledge-creation effect. A permanent increase in living standards is achievable under free market conditions, but adjustment costs and errors in long-term expectations might impede this development.

Keywords: endogenous technological change; environment; natural resources; sustainability (search for similar items in EconPapers)
JEL-codes: Q20 Q30 O41 O33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr and nep-env
Date: 2004-05
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Persistent link: http://EconPapers.repec.org/RePEc:eth:wpswif:03-29

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