How Substitutable Is Natural Capital?

Anil Markandya, Suzette Pedroso-Galinato

Research output: Contribution to journalArticlepeer-review

49 Citations (Scopus)

Abstract

One of the recurring themes in the sustainability literature has been the extent to which a loss of natural capital can be made up for in welfare terms by an increase in other forms of capital. This issue was raised early on in the debate on sustainability by Pearce and has never really been resolved. This paper is an empirical attempt to measure the degree of substitutability between different forms of capital. A nested CES production function is used to allow flexibility in the estimated elasticities of substitution. Also, within 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 on the efficiency of production and hence on income generation. No statistically significant relationship between income and any of the institutional indicators was found.
Original languageEnglish
Pages (from-to)297-312
Number of pages16
JournalEnvironmental and Resource Economics
Volume37
Issue number1
Publication statusPublished - 2007

Keywords

  • Capacity (E220)
  • Population Growth (Q560)
  • Environment and Development
  • Environment and Trade
  • Capital
  • Environmental Equity
  • Investment
  • Environmental Accounting
  • Sustainability

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