How should the world economy adapt to the increased demand for exhaustible resources fromcountries like Chinaand India? Toaddress that issue, this paper presents a dynamicmodel of the world economy with two technologies for production; a resource technology, which uses an exhaustible resource as an input and an alternative technology, which does not. I find that both the time path of resource extraction and the adoption of the alternative technology depend on the optimal allocation of capital across the technologies, and on the size of the capital stock in relation to the resource stock. In particular, if thecapital stockislow, only the resource technology is used initially and the alternative technology is adopted with a delay. Next, I use the model to analyze the effects of industrialization of developing countries on the extraction of oil and technology choice for energy production. As a result of industrialization, the alternative technology for energy production is adopted earlier.
Färnstrand Damsgaard, Erika (2012),
"Exhaustible Resources, Technology Choice and Industrialization of Developing Countries".
Resource and Energy Economics