Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 375: Directed technical change as a response to natural-resource scarcity
John Hassler, Per Krusell and Conny Olovsson ()
Additional contact information
John Hassler: IIES, University of Gothenburg and CEPR
Per Krusell: IIES, CEPR and NBER
Conny Olovsson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: How do markets economize on scarce natural resources? With an applica-tion to fossil energy, we emphasize technological change aimed at saving on the scarce resource. We develop quantitative macroeconomic theory as a tool for interpreting the past and thinking about the future. We argue, first, that aggre-gate U.S. data calls for a short-run substitution elasticity between energy and the capital/labor inputs that is near Leontief. Given this fact and an aggregate CES function, we note that energy-saving technical change took o right as the oil shocks hit in the 1970s. We rationalize this observation using a theory that views technical change as directed: it can be used to save on different inputs and, hence, the long-run substitutability between inputs becomes higher than Leontief. For our application, we estimate long-run dependence on fossil energy - measured by its factor share - to climb to a little below 10%; absent endogenous technical change directed toward energy-saving, it would go to 100%.
Keywords: Sustainability; Natural resource scarcity; technological change; economic growth; energy
56 pages, July 1, 2019
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