The effects of resource depletion on coal mining productivity

The Solow Residual has a direct interpretation as a measure of technical change under perfect competition and constant returns to scale. When these conditions do not hold, the residual has to be appropriately adjusted in order to be considered a correct measure of technical change. We argue that in extractive industries the Solow Residual is also affected by the continuous depletion of a non-renewable resource. Therefore, we provide a new decomposition of the Solow Residual for extractive industries in which the level of reserves is likely to affect extraction costs. Our empirical results illustrate the role played by the depletion of reserves in the measurement of productivity of coal mining in Spain.