The direction of technical change in capital-resource economies
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Date
2006-03
Publication Type
Working Paper
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yes
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Abstract
We analyze a multi-sector growth model with directed technical change where man-made capital and exhaustible resources are essential for production. The relative pro tability of factor-specific innovations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that convergence to balanced growth implies zero capital-augmenting innovations: in the long run, the economy exhibits purely resource-augmenting technical change. This result provides sound microfoundations 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.
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published
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Volume
06/50
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Publisher
ETH Zurich, Institute of Economic Research (WIF)
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Subject
Endogenous Growth; Sustainability; Exhaustible Resources; Directed Technical Change
Organisational unit
03635 - Bretschger, Lucas (emeritus) / Bretschger, Lucas (emeritus)
02045 - Dep. Geistes-, Sozial- u. Staatswiss. / Dep. of Humanities, Social and Pol.Sc.
Notes
First version January 30, 2006. This version March 7, 2006.