Reassessing the neoclassical substitution model: the increasing flows evidence

Abstract

In this article we assess the validity of the elasticity of substitution indicator to evaluate natural resource substitution. After clarifying the importance of the static equilibrium hypothesis for the development of such an indicator, we demonstrate that its application to growth conditions imposes the observation of decreasing inflows of natural resource as a necessary consequence. We derive this result without making any assumptions not recognized by advocates of the neoclassical approach. In addition to refuting the neoclassical substitution model, this result helps clarify the relationship observed since the Industrial Revolution between the physical and economic substitution of natural resources.

Keywords

• elasticity of substitution
• strong sustainability
• weak sustainability
• degrowth
• economic growth