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Sources of Economic Growth in Models with Non-Renewable Resources

Sriket, Hongsilp and Suen, Richard M. H. (2021): Sources of Economic Growth in Models with Non-Renewable Resources.

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Abstract

This paper re-examines the conditions under which endogenous economic growth can emerge in neoclassical models with non-renewable resources. Unlike most of the existing studies which focus exclusively on Cobb-Douglas production function, our analysis is based on a general specification. We formally prove that endogenous growth can emerge only under the "knife-edge" condition of a unitary elasticity of substitution between labour input and resource input. If this elasticity is not equal to one (as suggested by empirical evidence), then long-term economic growth is entirely driven by an exogenous technological factor. We also explore the implications of this on resource taxation.

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