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The Role of Energy in the Industrial Revolution and Modern Economic Growth

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  • David I. Stern

    ()

  • Astrid Kander

    ()

Abstract

The expansion in the supply of energy services over the last couple of centuries has reduced the apparent importance of energy in economic growth despite energy being an essential production input. We demonstrate this by developing a simple extension of the Solow growth model, which we use to investigate 200 years of Swedish data. We find that the elasticity of substitution between a capital-labor aggregate and energy is less than unity, which implies that when energy services are scarce they strongly constrain output growth resulting in a Malthusian steady-state. When energy services are abundant the economy exhibits the behavior of the “modern growth regime” with the Solow model as a limiting case. The expansion of energy services is found to be a major factor in explaining the industrial revolution and economic growth in Sweden, especially before the second half of the 20th century. In the latter period, labor-augmenting technological change becomes the dominant factor driving growth.

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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2011-01.

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Length: 37 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:een:camaaa:2011-01

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Final Versions of Two Papers Published
    by David Stern in Stochastic Trend on 2012-07-06 01:56:00
  2. Power to the People
    by noreply@blogger.com (David Stern) in Stochastic Trend on 2014-01-15 23:38:00
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Cited by:
  1. David I. Stern & Kerstin Enflo, 2013. "Causality Between Energy and Output in the Long-Run," CAMA Working Papers 2013-01, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. John Foster, 2013. "Energy, Knowledge and Economic Growth," Energy Economics and Management Group Working Papers 3-2013, School of Economics, University of Queensland, Australia.
  3. David I. Stern, 2010. "The Role of Energy in Economic Growth," CCEP Working Papers 0310, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
  4. Antonelli Cristiano & Gehringer Agnieszka, 2013. "Demand pull and technological flows within innovation systems: the intra-European evidence," Department of Economics and Statistics Cognetti de Martiis. Working Papers, University of Turin 201303, University of Turin.
  5. Farhani, Sahbi & Shahbaz, Muhammad & Sbia, Rashid & Chaibi, Anissa, 2014. "What does MENA region initially need: Grow output or mitigate CO2 emissions?," Economic Modelling, Elsevier, vol. 38(C), pages 270-281.
  6. Hussain Ali Bekhet & Lee Lian Ivy-Yap, 2014. "Highlighting Energy Policies and Strategies for the Residential Sector in Malaysia," International Journal of Energy Economics and Policy, Econjournals, Econjournals, vol. 4(3), pages 448-456.
  7. Martin de Wit & Matthew Kuperus Heun & Douglas J Crookes, 2013. "An overview of salient factors, relationships and values to support integrated energy-economic systems dynamic modelling," Working Papers 02/2013, Stellenbosch University, Department of Economics.
  8. Zsuzsanna Csereklyei & Stefan Humer, 2012. "Modelling Primary Energy Consumption under Model Uncertainty," Department of Economics Working Papers wuwp147, Vienna University of Economics, Department of Economics.
  9. David I. Stern, 2011. "From Correlation to Granger Causality," Crawford School Research Papers, Crawford School of Public Policy, The Australian National University 1113, Crawford School of Public Policy, The Australian National University.
  10. Farhani, Sahbi & Shahbaz, Muhammad & Sbia, Rashid, 2013. "What is MENA Region Initially Needed: Grow Output or Mitigate CO2 Emissions?," MPRA Paper 48859, University Library of Munich, Germany, revised 05 Aug 2013.

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