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Fuel for Economic Growth?

Author

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  • Gars, Johan

    (GEDB, Royal Swedish Academy of Sciences)

  • Olovsson, Conny

    (Research Department, Central Bank of Sweden)

Abstract

We set up an endogenous growth model in which the efficiency of both capital and fossil energy can be improved, whereas the efficiency of one alternative energy source is limited. With capital and energy as complements, there exist two steady states: one stagnant where energy is fully derived from the alternative energy source, and one with balanced growth where energy is fully sourced from fossil fuel. Heterogeneity in initial TFP levels can generate the Great Divergence. The demand for fossil fuel in technologically advanced countries drives up its price and makes fossil fuel too costly in less advanced countries that choose the alternative and stagnant energy input.

Suggested Citation

  • Gars, Johan & Olovsson, Conny, 2015. "Fuel for Economic Growth?," Working Paper Series 299, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0299
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    Cited by:

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    2. Conny Olovsson, 2019. "Oil prices in a general equilibrium model with precautionary demand for oil," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 1-17, April.
    3. Emmanuel Bovari & Victor Court, 2019. "Energy, knowledge, and demo-economic development in the long run: a unified growth model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01698755, HAL.
    4. Christos Karydas & Evangelos V. Dioikitopoulos, 2020. "Sustainability traps: patience and innovation," CER-ETH Economics working paper series 20/330, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    5. Christopher Kennedy, 2021. "A biophysical model of the industrial revolution," Journal of Industrial Ecology, Yale University, vol. 25(3), pages 663-676, June.
    6. Olovsson, Conny, 2016. "Oil prices in a real-businesscycle model with precautionary demand for oil," Working Paper Series 332, Sveriges Riksbank (Central Bank of Sweden).

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    More about this item

    Keywords

    Growth; Malthusian stagnation; Industrial Revolution; Great Divergence; Technological progress;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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