Munich Personal RePEc Archive

The Direction of Technical Change in Capital-Resource Economies

Di Maria, Corrado and Valente, Simone (2006): The Direction of Technical Change in Capital-Resource Economies.

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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 profitability 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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