Natural Resource Prices: Will They Ever Turn Up?

Abstract

Natural resource theory predicts that natural resource rents should increase over time. However, technical progress in resource extraction, environmental constraints, or great natural abundance could result in stagnant or declining product prices. Thus, there is no theoretical reason to believe that product prices will rise in the near future. The prediction of product prices by time-series methods is shown to depend critically upon whether the series are modeled as difference or trend stationary. Dickey–Fuller and Lagrange–Multiplier tests are used to show that the series are difference stationary. Long- and short-sample series are tested. Trend-stationary modeling strongly predicts rising resource prices. The result from difference–stationary modeling is that there is only a weak supposition that natural resource prices will rise.