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Energy Prices, Growth, and the Channels in Between: Theory and Evidence

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  • Lucas Bretschger

Abstract

The paper develops a theoretical model with different channels through which energy affects economic growth. The conditions for a crowding out of capital accumulation by intensive energy use are derived. In the empirical part, estimations using a system with five simultaneous equations for a sample of 37 developed countries with five-year average panel data over the period 1975-2004 are presented. It is shown that in the long run rising energy prices are not a threat to development. On the contrary, we find conditions under which decreasing energy input induces investments in physical and knowledge capital. A ten percent increase in energy prices is found to raise the growth rate by 0.4 percentage points.

Suggested Citation

  • Lucas Bretschger, 2010. "Energy Prices, Growth, and the Channels in Between: Theory and Evidence," OxCarre Working Papers 034, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:034
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    Cited by:

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    2. Bretschger, Lucas, 2017. "Climate policy and economic growth," Resource and Energy Economics, Elsevier, vol. 49(C), pages 1-15.
    3. Gersbach, Hans & Riekhof, Marie-Catherine, 2021. "Permit markets, carbon prices and the creation of innovation clusters," Resource and Energy Economics, Elsevier, vol. 65(C).
    4. 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).
    5. 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, December.
    6. 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.
    7. Alí Aali-Bujari & Francisco Venegas-Martínez & 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. Mundaca, Gabriela, 2017. "Energy subsidies, public investment and endogenous growth," Energy Policy, Elsevier, vol. 110(C), pages 693-709.
    13. 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.
    14. 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.
    15. 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.

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    More about this item

    Keywords

    Energy Prices and Growth; Endogenous Capital Accumulation; Structural Change; 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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