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The underestimated contribution of energy to economic growth

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  • Ayres, Robert U.
  • van den Bergh, Jeroen C.J.M.
  • Lindenberger, Dietmar
  • Warr, Benjamin

Abstract

Standard economic theory regards capital and labour as the main factors of production that satisfy the “cost-share theorem”. This paper argues that when a third factor, namely energy, is added physical constraints on substitution among the factors arise. We show that energy is a much more important factor of production than its small cost share may indicate. This implies that continued economic growth along the historical trend cannot safely be assumed, notably in view of considerably higher energy prices in the future due to peak oil and climate policy.

Suggested Citation

  • Ayres, Robert U. & van den Bergh, Jeroen C.J.M. & Lindenberger, Dietmar & Warr, Benjamin, 2013. "The underestimated contribution of energy to economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 27(C), pages 79-88.
  • Handle: RePEc:eee:streco:v:27:y:2013:i:c:p:79-88
    DOI: 10.1016/j.strueco.2013.07.004
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Wei & Yang, Jun & Sheng, Pengfei & Li, Xuesong & Wang, Xingwu, 2014. "Potential cooperation in renewable energy between China and the United States of America," Energy Policy, Elsevier, vol. 75(C), pages 403-409.
    2. Santos, João & Domingos, Tiago & Sousa, Tânia & St. Aubyn, Miguel, 2016. "Does a small cost share reflect a negligible role for energy in economic production? Testing for aggregate production functions including capital, labor, and useful exergy through a cointegration-base," MPRA Paper 70850, University Library of Munich, Germany.
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    6. Fagnart, Jean-François & Germain, Marc, 2016. "Net energy ratio, EROEI and the macroeconomy," Structural Change and Economic Dynamics, Elsevier, vol. 37(C), pages 121-126.
    7. Matthew K. Heun & João Santos & Paul E. Brockway & Randall Pruim & Tiago Domingos & Marco Sakai, 2017. "From Theory to Econometrics to Energy Policy: Cautionary Tales for Policymaking Using Aggregate Production Functions," Energies, MDPI, Open Access Journal, vol. 10(2), pages 1-44, February.
    8. Farley, Joshua & Costanza, Robert & Flomenhoft, Gary & Kirk, Daniel, 2015. "The Vermont Common Assets Trust: An institution for sustainable, just and efficient resource allocation," Ecological Economics, Elsevier, vol. 109(C), pages 71-79.
    9. Herrmann-Pillath, Carsten, 2015. "Energy, growth, and evolution: Towards a naturalistic ontology of economics," Ecological Economics, Elsevier, vol. 119(C), pages 432-442.
    10. Farley, Joshua & Schmitt, Abdon & Burke, Matthew & Farr, Marigo, 2015. "Extending market allocation to ecosystem services: Moral and practical implications on a full and unequal planet," Ecological Economics, Elsevier, vol. 117(C), pages 244-252.
    11. Yoann Verger, 2015. "Sraffa and ecological economics: review of the literature," Working Papers hal-01182894, HAL.
    12. Russ, Meir, 2016. "The probable foundations of sustainabilism: Information, energy and entropy based definition of capital, Homo Sustainabiliticus and the need for a “new gold”," Ecological Economics, Elsevier, vol. 130(C), pages 328-338.
    13. Joshua Farley, 2016. "The foundations for an ecological economy: an overview," Chapters,in: Beyond Uneconomic Growth, chapter 1, pages 3-21 Edward Elgar Publishing.
    14. Ferroni, Ferruccio & Hopkirk, Robert J., 2016. "Energy Return on Energy Invested (ERoEI) for photovoltaic solar systems in regions of moderate insolation," Energy Policy, Elsevier, vol. 94(C), pages 336-344.
    15. Jalil, Abdul, 2014. "Energy–growth conundrum in energy exporting and importing countries: Evidence from heterogeneous panel methods robust to cross-sectional dependence," Energy Economics, Elsevier, vol. 44(C), pages 314-324.
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    17. Capellán-Pérez, Iñigo & Mediavilla, Margarita & de Castro, Carlos & Carpintero, Óscar & Miguel, Luis Javier, 2014. "Fossil fuel depletion and socio-economic scenarios: An integrated approach," Energy, Elsevier, vol. 77(C), pages 641-666.
    18. repec:gam:jeners:v:10:y:2017:i:4:p:534-:d:95815 is not listed on IDEAS
    19. Kemp-Benedict, Eric, 2014. "The inverted pyramid: A neo-Ricardian view on the economy–environment relationship," Ecological Economics, Elsevier, vol. 107(C), pages 230-241.
    20. Helen Kopnina, 2017. "Sustainability: new strategic thinking for business," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 19(1), pages 27-43, February.
    21. Pablo-Romero, María del P. & Sánchez-Braza, Antonio, 2015. "Productive energy use and economic growth: Energy, physical and human capital relationships," Energy Economics, Elsevier, vol. 49(C), pages 420-429.
    22. Kahia, Montassar & Aïssa, Mohamed Safouane Ben & Lanouar, Charfeddine, 2017. "Renewable and non-renewable energy use - economic growth nexus: The case of MENA Net Oil Importing Countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 71(C), pages 127-140.
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    More about this item

    Keywords

    Economic growth; Energy cost share; Technological constraints; Peak oil; Climate policy;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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