IDEAS home Printed from https://ideas.repec.org/a/eee/energy/v26y2001i9p817-838.html
   My bibliography  Save this article

The minimum complexity of endogenous growth models:

Author

Listed:
  • Ayres, Robert U

Abstract

Conventional economic growth theory assumes that technological progress is exogenous and that resource consumption is a consequence, not a cause, of growth. This assumption is built into most, if not all, of the large-scale models used for policy guidance by governments. The reality is probably more complex. A ‘growth engine’ is a positive feedback loop involving declining costs and increasing demand. The neoclassical theory was based on population growth and the traditional savings–investment–capital accumulation mechanism. Solow added an exogenous residual called ‘technical progress’. However, based on both qualitative and quantitative evidence, physical resource flows have been, and still remain, a major factor of production. Yet doubts remain because of the small share of direct payments to energy (and other natural resource) suppliers in the national accounts. This paper shows that the apparent inconsistency between (small) factor payments and the high correlation between physical resource (energy) inputs and outputs can be traced to an often forgotten simplification. The standard neoclassical growth model produces final products directly from labor and capital without allowing any role for consumable intermediates. Correcting for the omission of intermediates by introducing a two-sector or multi-sector production process multiplies the impact of primary resource inputs and accounts for the apparent inconsistency.

Suggested Citation

  • Ayres, Robert U, 2001. "The minimum complexity of endogenous growth models:," Energy, Elsevier, vol. 26(9), pages 817-838.
  • Handle: RePEc:eee:energy:v:26:y:2001:i:9:p:817-838
    DOI: 10.1016/S0360-5442(01)00031-7
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0360544201000317
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/S0360-5442(01)00031-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Jacob Schmookler, 1962. "Changes in Industry and in the State of Knowledge as Determinants of Industrial Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 195-232, National Bureau of Economic Research, Inc.
    3. Erol, Umit & Yu, Eden S. H., 1987. "Time series analysis of the causal relationships between U.S. energy and employment," Resources and Energy, Elsevier, vol. 9(1), pages 75-89, June.
    4. Robert Ayres, 1994. "On economic disequilibrium and free lunch," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(5), pages 435-454, October.
    5. Jorgenson, Dale W, 1988. "Productivity and Postwar U.S. Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 23-41, Fall.
    6. Dale W. Jorgenson, 1984. "The Role of Energy in Productivity Growth," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 11-26.
    7. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    9. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
    10. Cleveland, Cutler J. & Kaufmann, Robert K. & Stern, David I., 2000. "Aggregation and the role of energy in the economy," Ecological Economics, Elsevier, vol. 32(2), pages 301-317, February.
    11. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    12. Kaufmann, Robert K., 1995. "The economic multiplier of environmental life support: Can capital substitute for a degraded environment?," Ecological Economics, Elsevier, vol. 12(1), pages 67-79, January.
    13. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    14. Costanza, Robert & Herendeen, Robert A., 1984. "Embodied energy and economic value in the United States economy: 1963, 1967 and 1972," Resources and Energy, Elsevier, vol. 6(2), pages 129-163, June.
    15. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    16. Daly, Herman E., 1992. "Is the entropy law relevant to the economics of natural resource scarcity?-- yes, of course it is!," Journal of Environmental Economics and Management, Elsevier, vol. 23(1), pages 91-95, July.
    17. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 369-405.
    18. Elbasha, Elamin H. & Roe, Terry L., 1996. "On Endogenous Growth: The Implications of Environmental Externalities," Journal of Environmental Economics and Management, Elsevier, vol. 31(2), pages 240-268, September.
    19. Stern, David I., 1993. "Energy and economic growth in the USA : A multivariate approach," Energy Economics, Elsevier, vol. 15(2), pages 137-150, April.
    20. Joseph Stiglitz, 1974. "Growth with Exhaustible Natural Resources: Efficient and Optimal Growth Paths," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 123-137.
    21. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    22. Burbidge, John & Harrison, Alan, 1984. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 459-484, June.
    23. repec:bla:scandj:v:95:y:1993:i:4:p:391-425 is not listed on IDEAS
    24. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
    25. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    26. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-1038, October.
    27. Cleveland, Cutler J., 1992. "Energy quality and energy surplus in the extraction of fossil fuels in the U.S," Ecological Economics, Elsevier, vol. 6(2), pages 139-162, October.
    28. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    29. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    30. John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1.
    31. Robert M. Solow, 1974. "The Economics of Resources or the Resources of Economics," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 12, pages 257-276, Palgrave Macmillan.
    32. Yu, Eden S. H. & Hwang, Been-Kwei, 1984. "The relationship between energy and GNP : Further results," Energy Economics, Elsevier, vol. 6(3), pages 186-190, July.
    33. Solomon Fabricant, 1954. "Economic Progress and Economic Change," NBER Books, National Bureau of Economic Research, Inc, number annu54-1.
    34. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    35. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
    36. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
    37. Kaufmann, Robert K., 1992. "A biophysical analysis of the energy/real GDP ratio: implications for substitution and technical change," Ecological Economics, Elsevier, vol. 6(1), pages 35-56, July.
    38. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-268, August.
    39. Moses Abramovitz, 1956. "Resource and Output Trends in the United States since 1870," NBER Books, National Bureau of Economic Research, Inc, number abra56-1.
    40. Moses Abramovitz, 1956. "Resource and Output Trends in the United States since 1870," NBER Chapters, in: Resource and Output Trends in the United States since 1870, pages 1-23, National Bureau of Economic Research, Inc.
    41. Wall, Göran, 1990. "Exergy conversion in the Japanese society," Energy, Elsevier, vol. 15(5), pages 435-444.
    42. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-552, September.
    43. Solomon Fabricant, 1954. "Economic Progress and Economic Change," NBER Chapters, in: Economic Progress and Economic Change, pages 1-97, National Bureau of Economic Research, Inc.
    44. Hannon, Bruce & Joyce, John, 1981. "Energy and technical progress," Energy, Elsevier, vol. 6(2), pages 187-195.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Moe, Espen, 2010. "Energy, industry and politics: Energy, vested interests, and long-term economic growth and development," Energy, Elsevier, vol. 35(4), pages 1730-1740.
    2. Ayres, Robert U. & Warr, Benjamin, 2005. "Accounting for growth: the role of physical work," Structural Change and Economic Dynamics, Elsevier, vol. 16(2), pages 181-209, June.
    3. Roque G Stagnitta & Matteo V Rocco & Emanuela Colombo, 2020. "A Complementary Approach to Traditional Energy Balances for Assessing Energy Efficiency Measures in Final Uses: The Case of Space Heating and Cooling in Argentina," Sustainability, MDPI, vol. 12(16), pages 1-29, August.
    4. Warr, Benjamin & Ayres, Robert U., 2012. "Useful work and information as drivers of economic growth," Ecological Economics, Elsevier, vol. 73(C), pages 93-102.
    5. Rocco, Matteo V. & Colombo, Emanuela, 2016. "Internalization of human labor in embodied energy analysis: Definition and application of a novel approach based on Environmentally extended Input-Output analysis," Applied Energy, Elsevier, vol. 182(C), pages 590-601.
    6. Richters, Oliver, 2015. "Integrating Energy Use into Macroeconomic Stock-Flow Consistent Models," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 154764, January.
    7. Halkos, George E. & Tzeremes, Nickolaos G., 2014. "The effect of electricity consumption from renewable sources on countries׳ economic growth levels: Evidence from advanced, emerging and developing economies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 39(C), pages 166-173.
    8. Missemer, Antoine & Nadaud, Franck, 2020. "Energy as a factor of production: Historical roots in the American institutionalist context," Energy Economics, Elsevier, vol. 86(C).
    9. François Allisson & Antoine Missemer, 2020. "Some Historiographical Tools for the Study of Intellectual Legacies," Post-Print halshs-02931492, HAL.
    10. Warr, Benjamin & Ayres, Robert, 2006. "REXS: A forecasting model for assessing the impact of natural resource consumption and technological change on economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 17(3), pages 329-378, September.
    11. Paul E. Brockway & Harry Saunders & Matthew K. Heun & Timothy J. Foxon & Julia K. Steinberger & John R. Barrett & Steve Sorrell, 2017. "Energy Rebound as a Potential Threat to a Low-Carbon Future: Findings from a New Exergy-Based National-Level Rebound Approach," Energies, MDPI, vol. 10(1), pages 1-24, January.
    12. Santos, João & Borges, Afonso & Domingos, Tiago, 2020. "Exploring the links between total factor productivity, final-to-useful exergy efficiency, and economic growth: Case study Portugal 1960-2014," MPRA Paper 100214, University Library of Munich, Germany.
    13. Aramendia, Emmanuel & Brockway, Paul E. & Pizzol, Massimo & Heun, Matthew K., 2021. "Moving from final to useful stage in energy-economy analysis: A critical assessment," Applied Energy, Elsevier, vol. 283(C).
    14. Sorrell, Steve, 2009. "Jevons' Paradox revisited: The evidence for backfire from improved energy efficiency," Energy Policy, Elsevier, vol. 37(4), pages 1456-1469, April.
    15. dos Santos, Rodrigo G. & de Faria, Pedro R. & Santos, José J.C.S. & da Silva, Julio A.M. & Flórez-Orrego, Daniel, 2016. "Thermoeconomic modeling for CO2 allocation in steam and gas turbine cogeneration systems," Energy, Elsevier, vol. 117(P2), pages 590-603.
    16. Heun, Matthew Kuperus & Owen, Anne & Brockway, Paul E., 2018. "A physical supply-use table framework for energy analysis on the energy conversion chain," Applied Energy, Elsevier, vol. 226(C), pages 1134-1162.
    17. Destek, Mehmet Akif, 2016. "Natural gas consumption and economic growth: Panel evidence from OECD countries," Energy, Elsevier, vol. 114(C), pages 1007-1015.
    18. Ayres, Robert U & Ayres, Leslie W & Warr, Benjamin, 2003. "Exergy, power and work in the US economy, 1900–1998," Energy, Elsevier, vol. 28(3), pages 219-273.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Warr, Benjamin & Ayres, Robert U., 2012. "Useful work and information as drivers of economic growth," Ecological Economics, Elsevier, vol. 73(C), pages 93-102.
    2. repec:ebl:ecbull:v:2:y:2002:i:1:p:1-15 is not listed on IDEAS
    3. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-72.
    4. Jones, Larry E. & Manuelli, Rodolfo E., 1997. "The sources of growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 75-114, January.
    5. Long, N.V. & Wong, K.Y., 1996. "Endogenous Growth and International Trade: A Survey," Working Papers 96-07, University of Washington, Department of Economics.
    6. Rosa Capolupo, 2005. "THE NEW GROWTH THEORIES AND THEIR EMPIRICS, Discussion Paper in Economics, University of Glasgow, N. 2005-04 (http://www.gla.ac.uk/Acad/Economics," GE, Growth, Math methods 0506003, University Library of Munich, Germany.
    7. Patrick Artus, 1993. "Croissance endogène : revue des modèles et tentatives de synthèse," Revue Économique, Programme National Persée, vol. 44(2), pages 189-228.
    8. Rosa Capolupo, "undated". "The New Growth Theoris and their Empirics," Working Papers 2005_4, Business School - Economics, University of Glasgow.
    9. Wilhelm, Rainer, 1996. "Endogene Wachstumstheorien und ihre Implikationen für Entwicklungsländer," Discussion Papers in Development Economics 20, Justus Liebig University Giessen, Institute for Development Economics.
    10. Chad Turner & Robert Tamura & Sean Mulholland, 2013. "How important are human capital, physical capital and total factor productivity for determining state economic growth in the United States, 1840–2000?," Journal of Economic Growth, Springer, vol. 18(4), pages 319-371, December.
    11. Jie Li & Robert Ayres, 2008. "Economic Growth and Development: Towards a Catchup Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(1), pages 1-36, May.
    12. Cleveland, Cutler J. & Kaufmann, Robert K. & Stern, David I., 2000. "Aggregation and the role of energy in the economy," Ecological Economics, Elsevier, vol. 32(2), pages 301-317, February.
    13. Julia Korosteleva & Colin Lawson, 2010. "The Belarusian case of transition: whither financial repression?," Post-Communist Economies, Taylor & Francis Journals, vol. 22(1), pages 33-53.
    14. Robert U. Ayres & Jeroen C.J.M. van den Bergh, 2000. "The Role of Material/Energy Resources and Dematerialisation in Economic Growth Theories," Tinbergen Institute Discussion Papers 00-068/3, Tinbergen Institute.
    15. Alan M. Taylor, 1995. "Growth and Convergence in the Asia-Pacific Region: On the Role of Openness, Trade and Migration," NBER Working Papers 5276, National Bureau of Economic Research, Inc.
    16. Schneider, Johannes & Ziesemer, Thomas, 1994. "What's New and What's Old in New Growth Theory: Endogenous Technology, Microfoundation, and Growth Rate Predictions," MPRA Paper 56132, University Library of Munich, Germany.
    17. van de Klundert, T.C.M.J. & Smulders, J.A., 1991. "Reconstructing growth theory : A survey," Other publications TiSEM 19355c51-17eb-4d5d-aa66-b, Tilburg University, School of Economics and Management.
    18. Gancia, Gino & Zilibotti, Fabrizio, 2005. "Horizontal Innovation in the Theory of Growth and Development," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 3, pages 111-170, Elsevier.
    19. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308, Elsevier.
    20. Matthias Firgo & Peter Mayerhofer, 2015. "Wissensintensive Unternehmensdienste, Wissens-Spillovers und regionales Wachstum. Teilprojekt 1: Wissens-Spillovers und regionale Entwicklung – Welche strukturpolitische Ausrichtung optimiert das Wach," WIFO Studies, WIFO, number 58342, July.
    21. Stephen Turnovsky, 2000. "Growth in an Open Economy: Some Recent Developments," Discussion Papers in Economics at the University of Washington 0015, Department of Economics at the University of Washington.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:26:y:2001:i:9:p:817-838. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.