While relative decoupling has occurred – that is, resource use has grown less quickly than the economy – absolute decoupling has not, raising the question whether it is possible.
This paper proposes a novel explanation for why decoupling has not happened historically.
It draws upon a recent theory of cost-share induced productivity change and an extension of post-Keynesian pricing theory to natural resources. Cost-share induced productivity change and pricing behavior set up two halves of a dynamic, which we explore from a post-Keynesian perspective. In this dynamic, resource costs as a share of GDP move toward a stable level, at which the growth rate of resource productivity is typically less than the growth rate of GDP. This provides a parsimonious explanation of the prevalence of relative over absolute decoupling. The paper then presents some illustrative applications of the theory.
This article is based on a working paper of the Post Keynesian Economics Study Group.