New Economics Papers
on Agricultural Economics
Issue of 2014‒01‒10
sixteen papers chosen by

  1. Do Oil Price Increases Cause Higher Food Prices? By Christiane Baumeister; Lutz Kilian
  2. Food Standards and Vertical Coordination in Aquaculture: The Case of Pangasius from Vietnam By Neda Trifković
  4. The challenge of measuring hunger By De Weerdt, Joachim; Beegle, Kathleen; Friedman,, Jed; Gibson, John
  5. Sustainable agriculture and rural development in terms of the republic of Serbia strategic goals realization within the Danube region. Achieving regional competitiveness By Cvijanović, Drago; Subić, Jonel; Andrei, Jean
  6. Contribution to the economic impact assessment of policy options to regulate animal cloning for food production with an economic simulation model By Koen Dillen; Emanuele Ferrari; Pascal Tillie; George Philippidis; Sophie Helaine
  7. The unintended consequence of an export ban: Evidence from Benin's shrimp sector By Houssa, Romain; Verpoorten, Marijke
  8. A classification of European NUTS3 regions By Meri Raggi; Fabien Santini; Sergio Gomez y Paloma; Sébastien Mary
  9. Feasibility and Cost of Increasing US Ethanol Consumption Beyond E10 By Bruce A. Babcock; Sebastien Pouliot
  10. Mapping Global Value Chains By Koen De Backer; Sébastien Miroudot
  11. The Effect of Prices on Nutrition: Comparing the Impact of Product- and Nutrient-Specific Taxes By Matthew Harding; Michael Lovenheim
  12. Economic Convergence with Divergence in Environmental Quality? Desertification Risk and the Economic Structure of a Mediterranean Country (1960-2010) By Esposito, Piero; Patriarca, Fabrizio; Perini, Luigi; Salvati, Luca
  13. Beyond inducement in climate change: Does environmental performance spur environmental technologies? By Claudia Ghisetti; Francesco Quatraro
  14. Eco-Efficiency and Eco-Productivity change over time in a multisectoral economic system By Mikuláš Luptáèik; Bernhard Mahlberg
  15. Twenty years of rural entrepreneurship: a bibliometric survey By Maria Lúcia Pato; Aurora A.C. Teixeira
  16. Biased Technological Change and the Relative Abundance of Natural Resources By John Boyce

  1. By: Christiane Baumeister; Lutz Kilian
    Abstract: U.S. retail food price increases in recent years may seem large in nominal terms, but after adjusting for inflation have been quite modest even after the change in U.S. biofuel policies in 2006. In contrast, increases in the real prices of corn, soybeans, wheat and rice received by U.S. farmers have been more substantial and can be linked in part to increases in the real price of oil. That link, however, appears largely driven by common macroeconomic determinants of the prices of oil and agricultural commodities, rather than the pass-through from higher oil prices. We show that there is no evidence that corn ethanol mandates have created a tight link between oil and agricultural markets. Rather, increases in food commodity prices not associated with changes in global real activity appear to reflect a wide range of idiosyncratic shocks ranging from changes in biofuel policies to poor harvests. Increases in agricultural commodity prices, in turn, contribute little to U.S. retail food price increases, because of the small cost share of agricultural products in food prices. There is no evidence that oil price shocks have caused more than a negligible increase in retail food prices in recent years. Nor is there evidence for the prevailing wisdom that oil-price-driven increases in the cost of food processing, packaging, transportation and distribution are responsible for higher retail food prices. Finally, there is no evidence that oil-market-specific events or, for that matter, U.S. biofuel policies help explain the evolution of the real price of rice, which is perhaps the single most important food commodity for many developing countries.
    Keywords: Inflation and prices; International topics
    JEL: Q42 Q11 Q43 E31
    Date: 2013
  2. By: Neda Trifković (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: This paper explores the interaction between food standards and vertical coordination in the Vietnamese pangasius sector. For farmers and processors alike, the adoption of standards is motivated by a desire to improve market access by ensuring high quality supply. Instead of encouraging the application of standards and contract farming, processing companies prefer to vertically integrate primary production largely due to concerns over the stable supply of pangasius with satisfactory quality and safety attributes. These tendencies increase the market dominance of industrial farming and worsen the position of small household farms.
    Keywords: food standards, motivation, vertical coordination, pangasius, Vietnam
    Date: 2014–01
  3. By: Mikhail Miklyaev (Cambridge Resources International Inc., USA, Eastern Mediterranean University, Mersin 10, Turkey); Glenn Jenkins (Department of Economics, Queen's University, Canada, Eastern Mediterranean University, Mersin 10, Turkey)
    Abstract: The study evaluates economic and financial returns of the shift from indigenous type of breed to cross-breed dairy cattle for milk production. Ethiopia is characterised by the high cost of cross-breed heifers making the transition for the poor households almost impossible without a support from the government or international donors. The deterministic cost-benefit analysis revealed a very positive net present value of the activity. Sensitivity analysis was performed to identify the main risk factors affecting the households. In addition the design of the study allowed to use the sensitivity analysis to identify the economic feasibility of a wide range of the government or donors support interventions in the dairy value chain. These include the estimation of the economic benefits of the sexed semen provision, veterinary access, feed cost reduction and improved artificial insemination services. The additional analysis was performed to compare economic returns of the farms with and without fodder production.
    Keywords: Ethiopia, High-lands, cost-benefit analysis, investment appraisal, stakeholder analysis, distributive analysis, dairy farm establishment, productivity enhancement interventions, cross-breed cattle, indigenous cattle, herd projections, sexed semen, artificial insemination, low-cost feed concentrates, pro-poor interventions, chronic food insecurity, poverty reduction, sustainable development.
    JEL: D31 D61 D62 F35 Q01 Q12
    Date: 2013–12
  4. By: De Weerdt, Joachim; Beegle, Kathleen; Friedman,, Jed; Gibson, John
    Abstract: There is widespread interest in the number of hungry people in the world and trends in hunger. Current global counts rely on combining each country's total food balance with information on distribution patterns from household consumption expenditure surveys. Recent research has advocated for calculating hunger numbers directly from these same surveys. For either approach, embedded in this effort are a number of important details about how household surveys are designed and how these data are then used. Using a survey experiment in Tanzania, this study finds great fragility in hunger counts stemming from alternative survey designs. As a consequence, comparable and valid hunger numbers will be lacking until more effort is made to either harmonize survey designs or better understand the consequences of survey design variation.
    Keywords: Food&Beverage Industry,Food Security,Nutrition,Rural Poverty Reduction,Regional Economic Development
    Date: 2014–01–01
  5. By: Cvijanović, Drago; Subić, Jonel; Andrei, Jean
    Abstract: International Scientific Conference „SUSTAINABLE AGRICULTURE AND RURAL DEVELOPMENT IN TERMS OF THE REPUBLIC OF SERBIA STRATEGIC GOALS REALIZATION WITHIN THE DANUBE REGION -achieving regional competitiveness“, which was held in period 5-7th December 2013 in Topola, the Republic of Serbia, through number of presented papers mainly provides an overview of results of scientific research on the integrated and interdisciplinary project no. III 46006 „SUSTAINABLE AGRICULTURE AND RURAL DEVELOPMENT IN TERMS OF THE REPUBLIC OF SERBIA STRATEGIC GOALS REALIZATION WITHIN THE DANUBE REGION“. International Scientific Conference „SUSTAINABLE AGRICULTURE AND RURAL DEVELOPMENT IN TERMS OF THE REPUBLIC OF SERBIA STRATEGIC GOALS REALIZATION WITHIN THE DANUBE REGION - achieving regional competitiveness“, gathered number of scientific workers and experts from many countries. Besides the authors from Serbia in Thematic Proceedings are also presented the papers of authors from Bosnia and Herzegovina, Macedonia, Romania, Russia, Moldova, Slovakia, Ukraine, Germany, the Netherlands, Japan and Austria. After all 92 papers were positively reviewed by the reviewers and presented on the International Scientific Conference, they were published in the Thematic Proceedings. Proceedings publisher was Institute of Agricultural Economics Belgrade, together with 34 eminent scientific-educational institutions from Serbia and abroad. In the Plenary Section were presented 3 papers which gave significant contributions to International Scientific Conference. Rest of the papers are systematized in 3 thematic sections: IKNOWLEDGE ECONOMY AND HUMAN CAPITAL IN THE FUNCTION OF IMPROVING REGIONAL COMPETITIVENESS (45 papers); II BIOREGIONALISM AND PERMACULTURE AS A CONCEPTS OF CONSERVATION OF ECOLOGICAL SPECIFICITIES OF RURAL AREAS (27 papers); III THE CONSTRUCTION OF AGRO-REGIONAL IDENTITY THROUGH INSTITUTIONAL REFORM (17 papers).
    Keywords: Agriculture, sustainable agriculture, rural development, strategic goals, Danube region, regional competitiveness
    JEL: A3 M0 O5 Q0 Q01
    Date: 2013–12–03
  6. By: Koen Dillen (European Commission – JRC - IPTS); Emanuele Ferrari (European Commission – JRC - IPTS); Pascal Tillie (European Commission – JRC - IPTS); George Philippidis (European Commission – JRC - IPTS); Sophie Helaine (European Commission – JRC - IPTS)
    Abstract: The EU is currently evaluating different policy options towards the use of cloning or products derived from cloned animals in the food chain. This study presents a first attempt to quantify the likely effects of different policy scenarios on international trade and EU domestic production. In the context of the Impact Asessment process the JRC was requested to simulate via a modelling study the economic impact of selected policy options. Based on a literature review and the specific constraints for this study, the choice was made to perform the analysis through the use of a computable general equilibrium model and focus on the dairy and beef sector. The different model scenarios are constructed based on combinations of the discussed policy options such as a ban or traceability and labelling requirements with the productivity increase associated with cloning. The results show that only the situation where trade with countries using the technique of cloning is suspended has an effect on competitiveness. This suspension could be due to express prohibitions or a de facto decision by exporters when traceability and labelling costs increase. Under this scenario imports drop significantly which is followed by a slight increase in domestic production and prices, especially for beef and cattle.
    Keywords: Cloning, CGE, European policy, international trade, competitiveness
    JEL: F11 F13 Q16 Q17 Q18
    Date: 2013–12
  7. By: Houssa, Romain; Verpoorten, Marijke
    Abstract: The inability of Benin to comply with EU standards led to a ban on its shrimp exports. The ban had a negative impact on the exporting firms, the fishmongers and the artisanal fishermen, even several years after it was lifted. Exports did not revive because local and international institutions failed to resolve the sector’s increased perceived riskiness and its inadequate financial and technical resources. For the fishermen, the impact of the ban persisted because they were locked in the fishery sector, and the local shrimp demand could not fully compensate for the loss of the EU market.
    Keywords: EU food safety standards; Aid for Trade; export ban; shrimp; Benin
    Date: 2013–12
  8. By: Meri Raggi; Fabien Santini; Sergio Gomez y Paloma (European Commission – JRC - IPTS); Sébastien Mary (European Commission – JRC - IPTS)
    Abstract: Over the years a number of Common Agricultural Policy (CAP) reforms have led to the emergence of a CAP chapter specifically dedicated to rural development, also referred as Pillar 2, and have resulted in a progressive switch of CAP budget from Pillar 1 (i.e. direct support to farmers, including direct payments and other instruments for market regulation) to Pillar 2. Approximately 23 per cent of the CAP should be allocated to rural development measures during the period 2014-2020. The recent development of Pillar 2 calls for further research on the impact assessment of such policies. Unfortunately, the diversity of rural situations across Europe has complicated the empirical studies of the impacts of rural development and often makes any comparison between regions rather trivial. The main objective of this report is the creation of a classification of 1303 NUTS3 regions, which reflects the heterogeneity of NUTS3 characteristics in the EU. This classification is multidimensional. In particular, the typology is based on the following set of four criteria: Rural Character, Accessibility, Actual economic diversification and Total Gross Domestic Product per capita. Such classification will facilitate the comparison of rural development policy impacts between regions of interest across Europe.
    Keywords: Rural Development, Classification, NUTS3 regions, European Union, Cluster analysis
    Date: 2013–12
  9. By: Bruce A. Babcock (Center for Agricultural and Rural Development (CARD)); Sebastien Pouliot (Center for Agricultural and Rural Development (CARD))
    Abstract: The proposed decision by the Environmental Protection Agency (EPA) to reduce biofuel mandates that can be met by ethanol to about 13 billion gallons is predicated in part on a finding that consumption of ethanol is largely limited to the amount that can be consumed in E10, a blended fuel containing 10 percent ethanol. One way to increase ethanol consumption beyond E10 levels is with E85, which contains up to 83 percent ethanol. Historical consumption of E85 provides a poor predictor of the level of possible consumption because the price of E85 has never been low enough to save owners of flex vehicles money. We use a new model of E85 demand to estimate the feasibility and cost of meeting higher ethanol mandate levels than those proposed by EPA. Our model shows that if existing E85 stations could sell as much E85 as demanded by consumers, and if E85 were priced at fuel-cost parity with E10, then ethanol consumption in E85 would be 1.65 billion gallons. If E85 were priced to generate a 20 percent reduction in fuel costs to consumers, then ethanol consumption would increase by 3.6 billion gallons per year. These calculations assume no growth in the number of flex vehicles above the level that existed on January 1, 2013. However, it is not realistic to assume that existing E85 stations could sell unlimited amounts of the fuel. Imposing an upper limit on monthly E85 sales of 45,000 gallons per station reduces ethanol-in-E85 consumption levels to 700 million gallons per year at parity prices, and 900 million gallons per year at a price that results in a 20 percent reduction in fuel costs. The large gap between how much E85 would be demanded by consumers and what can realistically be sold by existing stations shows that both price and the number of gasoline stations selling E85 constrain consumption. We show the impact of adding E85 sales outlets in urban areas where flex vehicles are concentrated by calculating the different combinations of new sales outlets and E85 retail prices needed to achieve a ethanol consumption targets beyond E10. An additional ethanol consumption target of 800 million gallons could be achieved with an E85 retail price of $2.32 per gallon and no new stations. If 500 new stations were added, then the required retail price increases to $2.71 per gallon. These results demonstrate that meeting a 14.4 billion gallon ethanol mandate is feasible in 2014 with no new stations, modestly lower E85 prices, and judicious use of available carryover RINs (Renewable Identification Numbers). Meeting a two billion gallon increase in consumption would require installing at least 3,000 new stations. At a cost of $130,000 per station, this would require a one-time investment of $390 million, or about 20 cents per gallon of increased ethanol consumption in one year. With 3,000 additional stations, the retail price of E85 would have to be discounted to $2.10 per gallon to generate two billion gallons of additional ethanol consumption. With a total of 3,500 new stations, the required E85 retail price increases to $2.60 per gallon. The large impact that adding new stations has on the retail price of E85 given a level of E85 sales gives EPA a powerful tool to incentivize investment in new stations that can facilitate meeting expanded ethanol consumption targets. Any gap that arises between the wholesale price of ethanol needed to support a lower retail E85 price and the cost of producing and transporting ethanol would be closed by the price of RINs. RIN prices also indicate the cost that owners of oil refineries bear to meet biofuel mandates. Thus, there exists an inverse relationship between the cost of compliance with mandates and the number of new E85 stations. This means that owners of oil refineries who bear the costs of complying with mandates can reduce their compliance costs by investing in new E85 stations. If EPA were to set the 2014 ethanol mandate at 14.4 billion gallons and the mandate was met by 13 billion gallons of ethanol in E10, 800 million gallons of ethanol in E85, and 600 million banked RINs, then the RIN price that would cover the gap between the required $2.32 per gallon price of E85 and the cost of producing and transporting ethanol would be 69 cents per RIN. With 500 additional stations, the RIN price would drop to 18 cents. This drop in RIN price represents more than a $7 billion drop in the total value of RINs that would be used for compliance in 2014. In this scenario, the cost of adding the additional stations would be $65 million. This dramatic decrease in the total cost of RINs from adding new E85 stations is what gives EPA the tool they need to incentivize the investments that would facilitate expanded ethanol mandates. EPA’s proposed rule would reduce mandated volumes of biofuels in part, because of “supply concerns associated with the blendwall.†We demonstrate in this paper that the important supply concern associated with the E10 blendwall pertains to the supply of stations that sell E85, not the supply of the biofuel. The lack of stations that sell the fuel results in a lack of demand for ethanol, not a lack of supply. EPA’s justification for reducing ethanol mandates means that mandates will not be increased beyond E10 levels until the number of stations that sell E85 increases sufficiently. Our results demonstrate that the number of stations that sell E85 will not increase until EPA sets ethanol mandates beyond E10 levels. If increased mandates wait for the stations to be built, mandates will never increase. Our results showing that 800 million gallons of ethanol can be consumed as E85 in 2014, even with no additional investment in E85 stations can provide one way out of this policy dilemma. Combining this additional consumption of ethanol in E85 with consumption of ethanol in E10 and available banked RINs would facilitate meeting a 14.4 billion gallon mandate in 2014. Adopting a 14.4 billion gallon ethanol mandate would send a clear signal that EPA is not locked into keeping ethanol mandates below E10 levels. It would also increase RIN prices enough to incentivize investments in new E85 stations, which would give EPA the freedom to move the ethanol mandate to 15 billion gallons in 2015. Our results show that it will take at least 3,000 additional stations selling E85 to achieve a 15 billion gallon mandate without use of carryover RINs. If all 3,000 stations needed an additional tank for E85, then it will involve a one-time investment cost of approximately $390 million, or about 20 cents for each gallon of ethanol sold in E85. Because this investment cost is far below what compliance costs would be without the investment, owners of oil refineries would have a strong incentive to make the investment.
    Date: 2014–01
  10. By: Koen De Backer; Sébastien Miroudot
    Abstract: World trade and production are increasingly structured around “global value chains” (GVCs). The last few years have witnessed a growing number of case studies describing at the product level how production is internationally fragmented, but there is little evidence at the aggregate level on the prevalence of GVCs. The main objective of this paper is to provide for more and better evidence allowing the examination of countries’ position within international production networks. We propose a number of indicators that give a more accurate picture of the integration and position of countries in GVCs, as well as a more detailed assessment of the value chain in six broad industries: agriculture and food products, chemicals, electronics, motor vehicles, business services and financial services.
    JEL: F14 F23 L16 L23
    Date: 2013–12–19
  11. By: Matthew Harding; Michael Lovenheim
    Abstract: This paper provides an analysis of the role of prices in determining food purchases and nutrition using very detailed transaction-level observations for a large, nationally-representative sample of US consumers over the period 2002-2007. Using product- specific nutritional information, we develop a new method of partitioning the product space into relevant nutritional clusters that define a set of nutritionally-bundled goods, which parsimoniously characterize consumer choice sets. We then estimate a large utility-derived demand system over this joint product-nutrient space that allows us to calculate price and expenditure elasticities. Using our structural demand estimates, we simulate the role of product taxes on soda, sugar-sweetened beverages, packaged meals, and snacks, and nutrient taxes on fat, salt, and sugar. We find that a 20% nutrient tax has a significantly larger impact on nutrition than an equivalent product tax, due to the fact that these are broader-based taxes. However, the costs of these taxes in terms of consumer utility are not higher. A sugar tax in particular is a powerful tool to induce healthier nutritive bundles among consumers.
    JEL: C33 H2 I12 I19
    Date: 2014–01
  12. By: Esposito, Piero; Patriarca, Fabrizio; Perini, Luigi; Salvati, Luca
    Abstract: The present study investigates the relationship between land vulnerability to desertification and the evolution of the productive structure in Italy during the last fifty years (1960-2010). The objectives of the study are two-fold: (i) to present and discuss an original analysis of the income-environment relationship in an economic-convergent and environmental-divergent country and (ii) to evaluate the impact of the (changing) productive structure and selected socio-demographic characteristics on the level of land vulnerability. The econometric analysis indicates that the relationship between per capita GDP and land vulnerability across Italian provinces is completely reverted once we move from a cross section analysis to panel estimates. While economic and environmental disparities between provinces go in the same direction, with richer provinces having a better land, over time the growth process increases the desertification risk, with the economic structure acting as a significant variable.
    Keywords: Environmental quality, Economic growth, Land degradation, Regional disparities, Italy, Panel data.
    JEL: C23 Q24 Q56 R11
    Date: 2013–12–30
  13. By: Claudia Ghisetti (Département des sciences économiques - Università di Bologna); Francesco Quatraro (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université Nice Sophia Antipolis [UNS])
    Abstract: This paper contributes to the debate on the inducement of environmental innovations by analysing the extent to which endogenous inducement mechanisms spur the generation of greener technologies in contexts characterized by weak exogenous inducement pressures. In the presence of a fragile environmental regulatory framework, inducement can indeed be endogenous and environmental innovations may be spurred by firms' reactions to their direct or related environmental performance. Cross-sector analysis focuses on a panel of Italian regions, over the time span 2003-2007, and is conducted by implementing zero-inflated regression models for count data variables. The empirical results suggest that in a context characterized by a weak regulatory framework, such as the Italian one, environmental performance has significant and complementary within- and between-sector effects on the generation of green technologies.
    Keywords: Green technologies; Environmental Performance; Regional NAMEA; Technological innovation; Knowledge production function
    Date: 2013–12–02
  14. By: Mikuláš Luptáèik (University of Economics in Bratislava, Faculty of National Economy, Department of Economic Policy); Bernhard Mahlberg
    Abstract: We measure eco-efficiency of an economy by means of an augmented Leontief input-output model extended by constraints for primary inputs. Using a multi-objective optimization model the eco-efficiency frontier of the economy is generated. The results of these multi-objective optimization problems define eco-efficient virtual decision making units (DMUs). The eco-efficiency is obtained as a solution of a data envelopment analysis (DEA) model with virtual DMUs defining the potential and a DMU describing the actual performance of the economy. In this paper the procedure is extended to an intertemporal approach in the spirit of the Luenberger productivity indicator. This indicator permits decomposing eco-productivity change into eco-efficiency change and eco-technical change. The indicator is then further decompounded in a way that enables us to examine the contributions of individual production factors, undesirable as well as desirable outputs to eco-productivity change over time. For illustration purposes the proposed model is applied to investigate eco-productivity growth of the Austrian economy.
    Keywords: Data Envelopment Analysis, Luenberger Indicator, Multi-Objective Optimization, Neoclassical Growth Accounting
    JEL: C67 O47 Q53 Q57
    Date: 2013–07–17
  15. By: Maria Lúcia Pato (Faculdade de Economia, Universidade do Porto); Aurora A.C. Teixeira (CEF.UP, Faculdade de Economia, Universidade do Porto; INESC Porto; OBEGEF)
    Abstract: Entrepreneurship, in general, and rural entrepreneurship, in particular, has become a dynamic field of research in the last two decades. It seems therefore timely to present a quantitative survey of the literature in this area, aimed at identifying the most important sub-topics, contributors and their geographical distribution, major outlets, main empirical methodologies employed, as well as the most frequently studied countries. Based on 181 articles published in journals indexed in Scopus (until March 2013), we found that within the entrepreneurship literature, ‘rural entrepreneurship’ has been largely overlooked and has gradually lost momentum. Rural entrepreneurship is an essentially ‘European’ concern, whose most prolific authors are affiliated in institutions located in the UK and Spain. The most important outlets for this topic are Entrepreneurship and Regional Development, International Journal of Entrepreneurship and Small Businesses, and Journal of Rural Studies. The average quality of the research on rural entrepreneurship has risen, as reflected by the journals’ impact factor, implying that it has gained a measure of scientific visibility. More research on rural entrepreneurship is being published in economics and business-related journals, losing to some extent its initial multidisciplinary scope. In the field of rural entrepreneurship, ‘Organization-related characteristics’, ‘Policy measures’ and ‘Institutional frameworks and Governance’ have attracted considerable attention in recent years, being considered as ‘emergent’ topics of research. In contrast, ‘Theory building’ has not attracted much research over the period in analysis, which suggests that the theoretical body of rural entrepreneurship is still incipient, hindering the establishment of its boundaries and of a suitable research agenda. The absence of an axiomatic and theoretical corpus prevents the full use of causality and hypotheses testing methodologies and explains to some extent the predominance of more qualitative types of research. Empirical literature on rural entrepreneurship has mainly analyzed developed countries, most notably, the UK, USA, Spain, Finland and Greece. Given the potential rural entrepreneurship represents for less developed and underdeveloped countries, more research on the topic is an imperative.
    Keywords: entrepreneurship, rural, bibliometric analysis
    JEL: L26 R58 R11 C89
    Date: 2013–12
  16. By: John Boyce (University of Calgary)
    Abstract: This paper documents that natural resources that are more abundant have higher production, lower prices, higher primary industry revenues, and higher R&D. These empirical facts are explained by a model of biased technological change in which relatively more abundant resources attract greater R&D because the return from obtaining a patent is higher in larger markets. Resource specific R&D may be targeted either towards upstream extraction technologies or towards downstream production technologies, and R&D is subject to diminishing knowledge spillovers and diminishing productivity of labor. The estimated elasticity of substitution between natural resources is greater than one, implying that natural resources are substitutes in production. Declining real resource prices in the face of rising resource production are explained by the increasing productivity of labor as knowledge stocks grow.
    Date: 2013–01–21

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