On technical change in the elasticities of resource inputs

Jakub Growiec and Ingmar Schumacher

No 2006063, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This article considers an economy whose production function takes both renewable and non-renewable resources as inputs. We extend the current literature by allowing for exogenous technical change in the elasticity of substitution betweenthese two types of resources. In addition, we study the consequences of biased technical change which alters the resources? relative productivities. We derive long-run asymptotic results, which we use to compare several cases. In the benchmark caseof no technical change, our results are close to those obtained by Dasgupta and Heal (1974). In the case of technical change in the elasticity of substitution, we observe that this kind of technical change helps obtain positive long-run production despite the depletion of non-renewable resources. In the biased technical change case, longrun production is only possible either if non-renewable resources are non-essential or if biased technical change is quick enough to compensate for the decreasing flowof non-renewable resources. We embed our production function in an optimal growth model and study its dynamics. As a steady state (or a balanced growth path) is only attainable as time goes to infinity, we resort to numerical simulations to convey what is happening during the short and medium run. Our results provide new considerations for the debate on natural resources. We suggest that technical change should be directed to the resource which is most important for production.

Keywords: elasticity of substitution; technical change; biased technical change; non-renewable resources; renewable resources (search for similar items in EconPapers)
JEL-codes: O30 Q20 Q30 (search for similar items in EconPapers)
Date: 2006-06
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: On technical change in the elasticities of resource inputs (2008)
Working Paper: On Technical Change in the Elasticities of Resource Inputs (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2006063

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