Technological Change in Resource Extraction and Endogenous Growth

We add an extractive sector to an endogenous growth model of expanding varieties and directed technological change. Extractive firms reduce the stock of non-renewable resources through extraction, but also increase the stock through R&D investment in extraction technology. Our model replicates long-term trends in non-renewable resource markets, namely stable prices and exponentially increasing extraction, for which we present data from 1792 to 2009. The model suggests that the development of new extraction technologies neutralizes the increasing demand for non-renewable resources in industrializing countries like China in the long term