Non-renewable Resources and Economic Growth: Comparing the classics to new models of endogenous technology and growth

The aim of the lecture is to revisit the classic question about the relationship between resource scarcity and economic growth. The new element is that we explicitly study the role of endogenous technological change. In the models we study, growth is driven by R&D-efforts as in endogenous growth theory. We examine under what conditions depletion of non-renewable resources limits economic growth, how substitution between man-made inputs and resources can overcome scarcity limits, and how substitution possibilities and resource depletion affect the incentives to innovate. We first review models of growth driven by non-renewable resource use and exogenous technological change. These models directly build on the classic contributions by Dasgupta/Heal, Solow, and Stiglitz published in 1974. We discuss the role of the elasticity of substitution and that of the rate of technological change. We then turn to new models of endogenous technological change. We examine whether physical capital alone is sufficient to guarantee positive growth, or whether technological change is needed. We also study whether investments in physical capital and in new technology are sustained, such that no exogenous technological change is needed to sustain growth.