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Energy prices, growth, and the channels in between: Theory and evidence

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  • Bretschger, Lucas

Abstract

The paper presents stylized cross-country evidence for a negative relationship between energy use and economic growth. Based on this motivation it develops a multisector framework to derive the growth impact of energy from first principles. The structural model is empirically estimated for a sample of 37 developed countries with five-year average data over the period 1975–2009. Estimations of both separate equations and simultaneous systems of equations are performed. The empirical results show a negative impact of energy use on investments in physical capital and knowledge formation. The estimations of simultaneous equations exhibit a dynamic effect of energy use: decreasing energy input and increasing energy prices induce additional investments fostering long-run growth. The growth effect counteracts the negative static effects of lower energy use.

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  • Bretschger, Lucas, 2015. "Energy prices, growth, and the channels in between: Theory and evidence," Resource and Energy Economics, Elsevier, vol. 39(C), pages 29-52.
    • Handle: RePEc:eee:resene:v:39:y:2015:i:c:p:29-52
    DOI: 10.1016/j.reseneeco.2014.11.002
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    2. Miranda R. Gorman & David A. Dzombak, 2019. "An Assessment of the Environmental Sustainability and Circularity of Future Scenarios of the Copper Life Cycle in the U.S," Sustainability, MDPI, vol. 11(20), pages 1-21, October.
    3. Ara Jo, 2020. "The Elasticity of Substitution between Clean and Dirty Energy with Technological Bias," CER-ETH Economics working paper series 20/344, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Best, Rohan & Burke, Paul J., 2018. "Electricity availability: A precondition for faster economic growth?," Energy Economics, Elsevier, vol. 74(C), pages 321-329.
    5. Bretschger, Lucas, 2017. "Climate policy and economic growth," Resource and Energy Economics, Elsevier, vol. 49(C), pages 1-15.
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    7. Kırca, Mustafa & Canbay, Şerif & Pirali, Kerem, 2020. "Is the relationship between oil-gas prices index and economic growth in Turkey permanent?," Resources Policy, Elsevier, vol. 69(C).
    8. Lucas Bretschger, 2018. "Greening Economy, Graying Society," CER-ETH Press, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich, edition 2, number 18-001.
    9. Ali Sekkach & Nabil Boubrahimi, 2022. "Oil price volatility and GDP for oil-importing countries: Case of Morocco [Volatilité des prix du pétrole et PIB des pays importateurs : Cas du Maroc]," Post-Print hal-03748687, HAL.
    10. Valeria Costantini & Francesco Crespi & Elena Paglialunga, 2019. "Capital–energy substitutability in manufacturing sectors: methodological and policy implications," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 9(2), pages 157-182, June.
    11. Al Aali-Bujari & Francisco Venegas-Mart nez & Alfredo Omar Palafox-Roca, 2017. "Impact of Energy Consumption on Economic Growth in Major Organization for Economic Cooperation and Development Economies (1977-2014): A Panel Data Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 7(2), pages 18-25.
    12. Borissov, Kirill & Brausmann, Alexandra & Bretschger, Lucas, 2019. "Carbon pricing, technology transition, and skill-based development," European Economic Review, Elsevier, vol. 118(C), pages 252-269.
    13. Lucas Bretschger, 2016. "Is the Environment Compatible with Growth? Adopting an Integrated Framework," CER-ETH Economics working paper series 16/260, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    14. Andreas Schaefer, 2017. "Enforcement of Intellectual Property, Pollution Abatement, and Directed Technical Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 457-480, March.
    15. Olexandr Yemelyanov & Anastasiya Symak & Tetyana Petrushka & Olena Zahoretska & Myroslava Kusiy & Roman Lesyk & Lilia Lesyk, 2019. "Changes in Energy Consumption, Economic Growth and Aspirations for Energy Independence: Sectoral Analysis of Uses of Natural Gas in Ukrainian Economy," Energies, MDPI, vol. 12(24), pages 1-34, December.
    16. Mundaca, Gabriela, 2017. "Energy subsidies, public investment and endogenous growth," Energy Policy, Elsevier, vol. 110(C), pages 693-709.
    17. Camacho, Maximo & Caro Navarro, Ángela & Peña, Daniel, 2020. "What do international energy prices have in common after taking into account the key drivers?," DES - Working Papers. Statistics and Econometrics. WS 31647, Universidad Carlos III de Madrid. Departamento de Estadística.
    18. Lucas Bretschger & Alexandra Vinogradova, 2015. "Equitable and effective climate policy: Integrating less developed countries into a global climate agreement," International Economics and Economic Policy, Springer, vol. 12(4), pages 437-467, October.
    19. 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.
    20. Lucas Bretschger, 2022. "Green Road is Open: Economic Pathway with a Carbon Price Escalator," CER-ETH Economics working paper series 22/375, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    21. Olexandr Yemelyanov & Anastasiya Symak & Tetyana Petrushka & Roman Lesyk & Lilia Lesyk, 2018. "Evaluation of the Adaptability of the Ukrainian Economy to Changes in Prices for Energy Carriers and to Energy Market Risks," Energies, MDPI, vol. 11(12), pages 1-34, December.
    22. Calì, Massimiliano & Cantore, Nicola & Marin, Giovanni & Mazzanti, Massimiliano & Nicolli, Francesco & Presidente, Giorgio, 2023. "Energy prices and the economic performance of firms in emerging countries," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 357-366.
    23. Juan Manuel Candelo-Viafara & Andrés Felipe Oviedo-Gómez, 2020. "Efecto derrame del mercado internacional en las economías latinoamericanas: los casos de Chile, Brasil, Colombia y México," Apuntes del Cenes, Universidad Pedagógica y Tecnológica de Colombia, vol. 39(70), pages 107-138, July.
    24. Camacho, Maximo & Caro, Angela & Peña, Daniel, 2023. "What drives industrial energy prices?," Economic Modelling, Elsevier, vol. 120(C).

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    More about this item

    Keywords

    Energy; Development; Capital accumulation; Panel data;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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