7. A New-Growth Perspective on Non-Renewable Resources

The aim of this article is to review issues related to the incorporation of scarce natural resources in the theory of economic growth and development. More specifically, we shall concentrate on the role of non-renewable resources. A nonrenewable resource is a natural resource the amount of which on earth is finite and which has no natural regeneration process (at least not within a relevant time scale). Hence, the stock of a non-renewable resource is depletable. Fossil fuels as well as many non-energy minerals are examples. A renewable resource is also available only in limited supply, but its stock is replenished by a natural regeneration process. Hence, if the stock of a renewable resource is not over-exploited, it can be sustained in a more or less constant amount. Fertile soil, fish in the sea, and environmental qualities (clean air etc.) would be examples. In this article the focus is on the specific features of non-renewable resources in relation to the feasibility of sustained economic growth. The old Malthusian and Ricardian views were that scarce natural resources tend to cause diminishing returns to inputs of capital and labour taken together and thereby economic stagnation in the long run. Malthus and Ricardo had primarily land in mind. But what if also non-renewable, hence exhaustible, resources are essential inputs in production? Then the long-run prospect may be worse than stagnation according to the dire predictions of the Club of Rome set forth in the “Limits to growth” report by Meadows et al. (1972).1 The worldwide oil crisis of the mid-1970s fuelled the interest in this topic.2 Prominent economists like Solow (1974a, 1974b), Stiglitz (1974a, 1974b), Dasgupta and Heal (1974), and others took these challenges as an occasion for in-depth studies of the macroeconomics of non-renewable resources, including the big questions about sustainable