Natural Capital and Technological Change: Impacts on Productivity Growth and Natural Resource and Environmental Sustainability

The economy's goods and services are produced with factor inputs; traditionally identified as land, labour, and capital. Land is a proxy for the stocks of natural resources – land and soils, timber, minerals, energy, water and the capacity of the natural environment to absorb or neutralize the waste products of production and consumption. Economic modeling in much of the 20 century typically focused on the roles of labour and capital, implicitly assuming that natural and environmental resources were so abundant that they could be treated as 'free' goods. Of course, most economists recognized that natural resources used as inputs were not free; capital and labour had to be used to extract or harvest them, but because of the relative abundance of natural resources, they were routinely ignored in productivity studies and other aggregate analyses of the economy. It was only when natural and environmental resources were particularly scarce, for example, during the 'energy crisis' of the 1970s when petroleum prices skyrocketed, that natural resources entered into estimations of production functions and productivity. The late 1960s and early 1970s also ushered in awareness of increasing scarcity of environmental resources because pollution levels began to have noticeable impacts on human and ecosystem health.