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Energy Prices, Growth,and the Channels in Between: Theory and Evidence

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Abstract

The paper first develops a theoretical model with different sectors, each providing a channel for an impact of energy prices on growth. In the short run, growth is hampered by increasing energy prices. In the long run, however, capital accumulation may be crowded out by energy use. This happens in the sectors with poor substitution possibilities between primary inputs where growth increases with rising energy prices. In the empirical part, estimations using di¤erent channels and energy sources with five-year average panel data for a sample of 44 developed countries in the period 1975-1999 are presented. It is shown that, for a large variety of constellations, rising energy prices are not a threat to economic development, they can even be positive for growth.

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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 06/47.

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Length: 24 pages
Date of creation: Jan 2006
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Handle: RePEc:eth:wpswif:06-47

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Keywords: Energy Prices and Growth; Endogenous Capital Accumulation; Structural Change; Panel Data;

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Cited by:
  1. Grimaud, André & Magné, Bertrand & Rougé, Luc, 2009. "Polluting Non-Renewable Resources, Carbon Abatement and Climate Policy in a Romer Growth Model," TSE Working Papers 09-023, Toulouse School of Economics (TSE).
  2. Lucas Bretschger, 2010. "Sustainability economics, resource efficiency, and the Green New Deal," International Economics and Economic Policy, Springer, vol. 7(2), pages 187-202, August.

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