Economy and environment: An econometric investigation of the relationship between physical and natural capitals

This study is to investigate the existence of complementarity or substitutability between physical capital and natural resource capital.; We started by compiling and estimating a new data set for natural resource capital for the U.S. environment. We use "natural resource capital" instead of "natural capital," because essential meaning of the environment is that its resources are sufficient to sustain economic longevity. Natural resource capital is defined as the sum of environmental investments ("defensive expenditures") to maintain and improve sustainability of the nature to be able to provide current and future generations the same prosperity. Because of the different natures of natural resources, we further distinguish the natural resource capital into two categories: resource capital with sink effect (N{dollar}sb1{dollar}) and resource capital with resource effect (N{dollar}sb2{dollar}).; We consider two models with translog form: a model with aggregated natural resource capital and a model with disaggregated natural resource capital. Estimation of coefficients for both models is conforming to theory and are statistically significant. The econometric results indicate that a complementary relationship occurs between resource capital with sink effect and physical capital; and a substitutable relationship exists between resource capital with resource effect and physical capital.