How Substitutable Is Natural Capital?

One of the recurring themes in the sustainability literature has been the legitimacy of using an economic framework to account for natural resources. This paper examines the potential for substituting between different inputs in the generation of income, where the inputs include natural resources such as land and energy resources. A nested constant elasticity of substitution (CES) production function is used to allow flexibility in the estimated elasticities of substitution. Also, with this specification, natural resources and other inputs are combined in different levels of the function, thus allowing for different levels of substitutability. Institutional and economic indicators are also incorporated in the production function estimated. Results show that the elasticities derived from functions involving land resources were generally around one or greater, implying a fairly high degree of substitutability. Furthermore, changes in trade openness and private sector investment have a statistically significant and direct relationship with income generation. No statistically significant relationship between income and any of the institutional indicators was found.

Bibliographic Details

Main Authors:	Markandya, Anil, Pedroso-Galinato, Suzette
Language:	English
Published:	World Bank, Washington, DC 2006-01
Subjects:	ABSOLUTE VALUE, ACCOUNTABILITY, ACCOUNTING, AMOUNT OF LAND, ASSETS, CAPITAL INPUT, CAPITAL-LABOR, CO2, CONSTANT ELASTICITY, CROSS-SECTION DATA, DEPENDENT VARIABLE, ECONOMETRIC ANALYSIS, ECONOMIC EFFECTS, ECONOMIC FACTORS, ECONOMIC FRAMEWORK, ECONOMIC GROWTH, ECONOMIC INDICATORS, ECONOMIC REVIEW, ECONOMIC STUDIES, ECONOMIC THEORY, ELASTICITY, ELASTICITY OF SUBSTITUTION, EMPIRICAL ESTIMATION, EMPIRICAL WORK, EXPLANATORY VARIABLES, EXPORTS, FACTOR DEMAND, FINANCIAL DEPTH, FINANCIAL DEVELOPMENT, FUNCTIONAL FORM, FUNCTIONAL FORMS, GDP, GROSS OUTPUT, HUMAN CAPITAL, INCOME, INCOME PER CAPITA, INSTITUTIONAL DEVELOPMENT, INSURANCE, LABOR INPUT, LABOR PRODUCTIVITY, LEVEL OF OUTPUT, LEVELS OF CAPITAL, LOW INCOME, MACROECONOMICS, MARKET VALUE, MATHEMATICAL ECONOMICS, NATIONAL INCOME, NATURAL RESOURCES, NEGATIVE ELASTICITY, NEOCLASSICAL MODEL, POLICY RESEARCH, POLITICAL INSTABILITY, POSITIVE IMPACT, PRESENT VALUE, PRICE CHANGES, PRICE ELASTICITY, PRICE ELASTICITY OF DEMAND, PRIVATE SECTOR, PRODUCTION FUNCTION, PRODUCTION FUNCTIONS, PRODUCTION INPUTS, PROPORTIONAL CHANGE, REGRESSION RESULTS, RELATIVE PRICES, RENEWABLE ENERGY, SIGNIFICANT CORRELATION, SIGNIFICANT IMPACT, SIGNIFICANT RELATIONSHIP, SUBSTITUTION RESPONSES, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/2006/01/6523016/substitutable-natural-capital https://hdl.handle.net/10986/8827
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