Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 723: The Real Real Price of Nonrenewable Resources: Copper 1870-2000

Peter Svedberg () and John Tilton ()
Additional contact information
Peter Svedberg: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
John Tilton: Colorado School of Mines, Postal: Division of Economics and Business, 816 15th Street, Golden, CO 80401, USA

Abstract: Over the past 40 years economists have devoted considerable effort to estimating long-run trends in real commodity prices. The results indicate that the real prices for many commodities have fallen, suggesting to the surprise of many that resource scarcity is declining over time. Almost all of this work, however, uses the U.S. producer price index or other standard price deflators, which recent research shows overestimate inflation for several reasons. This article examines copper prices with adjusted deflators designed to eliminate this bias. It finds that the trend over time, which is significantly downward when no adjustment is made to the deflator, displays no tendency in either direction or is significantly upward depending on the magnitude of the deflator adjustment employed. These findings suggest that real resource prices provide less support than widely assumed for the hypothesis that resources are becoming more available or less scarce over time.

Keywords: resources; copper; real price; inflation bias; scarcity

JEL-codes: C30; F10; O13; Q30

33 pages, July 17, 2003

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