Modelling Natural Resource Scarcity Using the 'Error-Correction' Approach

B. Moazzami and F. J. Anderson

Canadian Journal of Economics, 1994, vol. 27, issue 4, 801-12

Abstract: An error correction framework is used to test the long-run hypothesis that prices of natural resources commodities in the United States exhibit scarcity properties from the late nineteenth century to 1988 in the sense that real resource commodity prices have been increasing or following a U-shaped pattern, introduced by M. E. Slade (1982). The model is formulated to test the validity of the deflation procedure itself along with the scarcity properties. Results indicate that the model works well as a description of the long-term behavior of resources prices and supports the U-shaped version of the scarcity hypothesis in a majority of cases. An "error correction" framework is used to test the long-run hypothesis that prices of natural resources commodities in the U.S. exhibit scarcity properties from the late nineteenth century to 1988 in the sense that real resource commodity prices have been increasing or following a U-shaped pattern (Slade 1982). The model is formulated to test the validity of the deflation procedure itself along with the scarcity properties. Results indicate that the model works well as a description of the long-term behaviour of resources prices and supports the U-shaped version of the scarcity hypothesis in a majority of cases.

Date: 1994
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