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

Di Maria, Corrado ORCID: https://orcid.org/0000-0002-3048-0506 and Valente, Simone (2008) Hicks meets Hotelling: the direction of technical change in capital–resource economies. Environment and Development Economics, 13 (6). pp. 691-717. ISSN 1469-4395

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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.

Item Type: Article
Faculty \ School: Faculty of Social Sciences > School of Economics
University of East Anglia > Faculty of Science > Research Centres > Tyndall Centre for Climate Change Research
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Depositing User: Pure Connector
Date Deposited: 21 Jan 2014 13:54
Last Modified: 24 Oct 2022 05:56
URI: https://ueaeprints.uea.ac.uk/id/eprint/47124
DOI: 10.1017/S1355770X08004567

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