Hicks meets Hotelling : the direction of technical change in capital–resource economies

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Title: Hicks meets Hotelling : the direction of technical change in capital–resource economies
Authors: Di Maria, Corrado
Valente, Simone
Permanent link: http://hdl.handle.net/10197/864
Date: Dec-2008
Abstract: We analyze a two-sector growth model with directed technical change where man-made capital and exhaustible resources are essential for production. The relative profitability of factor-specific innovations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that any balanced growth equilibrium features purely resource-augmenting technical change. This result is compatible with alternative specifications of preferences and innovation technologies, as it hinges on the interplay between productive efficiency in the final sector, and the Hotelling rule characterizing the efficient depletion path for the exhaustible resource. Our result provides sound micro-foundations for the broad class of models of exogenous/endogenous growth where resource-augmenting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.
Type of material: Journal Article
Publisher: Cambridge University Press
Copyright (published version): Copyright Cambridge University Press 2008
Subject LCSH: Economic development--Mathematical models
Technological innovations
Nonrenewable natural resources
DOI: 10.1017/S1355770X08004567
Language: en
Status of Item: Peer reviewed
Appears in Collections:Architecture, Planning and Environmental Policy Research Collection

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