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Non-Renewable but Inexhaustible – Resources in an Endogenous Growth Model

Martin Stürmer () and Gregor Schwerhoff
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Martin Stürmer: Institute for International Economic Policy (IIW), University of Bonn

Authors registered in the RePEc Author Service: Martin Stuermer ()

No 2012_09, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: This paper proposes an endogenous growth model with an essential non-renewable resource, where economic growth enables firms to invest in innovation in the extraction technology and to allocate more capital to resource extraction. Innovation in the extraction technology offsets the deterioration of ore qualities and keeps the production costs of the non-renewable resource constant. Aggregate output as well as production and use of the non-renewable resource increase exponentially. Our model explains the long-run trends of non-renewable resource prices and world production over more than 200 years. If historical trends in technological progress and in the deterioration of ore qualities continue, it is in the realm of possibility that non-renewable resources are de facto inexhaustible. Our results suggest that the industrialization in China and other emerging economies contributes to keeping non-renewable resource prices constant in the long run.

Keywords: Non-Renewable Resources; Endogenous Growth; Extraction Technology (search for similar items in EconPapers)
JEL-codes: O44 Q32 Q33 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-dge, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

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