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

Corrado Di Maria, S. Valente

Research output: Contribution to journalArticle

32 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)691-717
Number of pages27
JournalENVIRONMENT AND DEVELOPMENT ECONOMICS
Volume13
Issue number6
DOIs
Publication statusPublished - 2008

ASJC Scopus subject areas

  • Economics and Econometrics
  • Environmental Science(all)
  • Development

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