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Energy Prices, Capital Formation, and Potential GNP

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  • David F. Burgess

Abstract

A common theme of the rapidly developing literature on energy-economy interaction is that higher energy prices-initiated by external events such as OPEC-will permanently reduce the growth potential of net energy-importing economies even if full-employment conditions are maintained. According to this literature, in the absence of government measures to encourage saving and investment any initial adverse effect on the economy's real income at full employment (hereafter referred to as potential GNP) resulting from the need to pay a higher real price for imported energy will be compounded by secondary effects that reduce the rate of capital formation. This secondary or reverse feedback effect through capital may be the largest component of the overall impact on potential GNP.

Suggested Citation

  • David F. Burgess, 1984. "Energy Prices, Capital Formation, and Potential GNP," The Energy Journal, , vol. 5(2), pages 1-28, April.
    • Handle: RePEc:sae:enejou:v:5:y:1984:i:2:p:1-28
    DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No2-1
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    References listed on IDEAS

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    1. Stephen C. Peck & John L. Solow, 1982. "Domestic Energy: A Forgotten Factor in Simple Energy-Economy Models," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 39-52.
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    Cited by:

    1. Greene, David L & Jones, Donald W & Leiby, Paul N, 1998. "The outlook for US oil dependence," Energy Policy, Elsevier, vol. 26(1), pages 55-69, January.
    2. Kaufmann, Robert K., 1995. "A model of the world oil market for project LINK Integrating economics, geology and politics," Economic Modelling, Elsevier, vol. 12(2), pages 165-178, April.

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      More about this item

      Keywords

      Energy prices; Capital formation; potential GNP; Energy-economy interaction;
      All these keywords.

      JEL classification:

      • F0 - International Economics - - General

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