MODELING NATURAL-RESOURCE SCARCITY USING THE ERROR-CORRECTION APPROACH

An 'error correction' framework is used to test the long-run hypothesis that prices of natural resources commodities in the U.S. exhibit scarcity properties from the late nineteenth century to 1988 in the sense that real resource commodity prices have been increasing or following a U-shaped pattern (Slade 1982). The model is formulated to test the validity of the deflation procedure itself along with the scarcity properties. Results indicate that the model works well as a description of the long-term behaviour of resources prices and supports the U-shaped version of the scarcity hypothesis in a majority of cases.