Cointegration of output, capital, labor, and energy

Stresing, Robert; Lindenberger, Dietmar; Kümmel, Reiner

doi:10.1140/epjb/e2008-00412-6

Cited by 33 publications

(15 citation statements)

References 29 publications

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“…12 We note that improving the modeling of the explicit ("creativity-induced") time dependence of the Linex production function by Taylor series and/or logistics for the technology parameters a(t) and c(t) does not change the findings from less sophisticated fitting procedures [11], [20,27], [48]: the output elasticity of energy is much larger than its small cost share of roughly 5 percent. Cointegration analysis of output, capital, labor, and energy [49] confirms the output elasticities of k, l, e in Table 2. Cobb-Douglas production functions, Eq.…”

Section: Computing Output Elasticitiessupporting

confidence: 60%

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Thermodynamic laws, economic methods and the productive power of energy

Kümmel¹,

Ayres

Lindenberger

2010

Journal of Non-Equilibrium Thermodynamics

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Energy plays only a minor role in orthodox theories of economic growth, because standard economic equilibrium conditions say that the output elasticity of a production factor, which measures the factor's productive power, is equal to the factor's share in total factor cost. Having commanded only a tiny cost share of about 5 percent so far, energy is often neglected altogether. On the other hand, energy conversion in the machines of the capital stock has been the basis of industrial growth. How can the physically obvious economic importance of energy be reconciled with the conditions for economic equilibrium, which result from the maximization of profit or overall welfare? We show that these equilibrium conditions no longer yield the equality of cost shares and output elasticities, if the optimization calculus takes technological constraints on the combinations of capital, labor and energy into account. New econometric analyses of economic growth in Germany, Japan and the USA yield output elasticities that are for energy much larger and for labor much smaller than their cost shares. Social consequences are discussed.

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Section: Computing Output Elasticitiessupporting

confidence: 60%

“…Cobb-Douglas production functions, Eq. (50), in which the α 0 and β 0 are of the order of magnitude of theᾱ andβ in Table 2, also reproduce economic growth with relatively small residuals, albeit with worse statistical quality measures [49].…”

Section: Computing Output Elasticitiesmentioning

confidence: 83%

Thermodynamic laws, economic methods and the productive power of energy

Kümmel¹,

Ayres

Lindenberger

2010

Journal of Non-Equilibrium Thermodynamics

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“…Denison [20] suggests a second argument: that energy's low "cost-share" (typically below 10% of GDP [92,93]) means it can only make a correspondingly small contribution to economic growth. However, authors including Stresing et al [94] have sought to debunk this argument, whilst Aucott and Hall [95] show how-despite its low "cost-share"-small variations in energy prices have significant impacts on economic output.…”

Section: Wider Literature Searchmentioning

confidence: 99%

Energy-Extended CES Aggregate Production: Current Aspects of Their Specification and Econometric Estimation

et al. 2017

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Capital-labour-energy Constant Elasticity of Substitution (CES) production functions and their estimated parameters now form a key part of energy-economy models which inform energy and emissions policy. However, the collation and guidance as to the specification and estimation choices involved with such energy-extended CES functions is disparate. This risks poorly specified and estimated CES functions, with knock-on implications for downstream energy-economic models and climate policy. In response, as a first step, this paper assembles in one place the major considerations involved in the empirical estimation of these CES functions. Discussions of the choices and their implications lead to recommendations for CES empiricists. The extensive bibliography allows those interested to dig deeper into any aspect of the CES parameter estimation process.

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“…The shadow prices (25) differ from those of (15) in two aspects. First, there is the term δ μ ( ) 15). If one does profit maximization subject to the additional constraint ⃗ ⃗ = c p X · f , which fixes factor cost, one gets the quotients of the Lagrange multipliers as in (25).…”

Section: Optimization Of Time-integrated Utility (Welfare)mentioning

confidence: 99%

How energy conversion drives economic growth far from the equilibrium of neoclassical economics

Kümmel

Lindenberger

2014

New J. Phys.

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Energy conversion in the machines and information processors of the capital stock drives the growth of modern economies. This is exemplified for Germany, Japan, and the USA during the second half of the 20th century: econometric analyses reveal that the output elasticity, i.e. the economic weight, of energy is much larger than energyʼs share in total factor cost, while for labor just the opposite is true. This is at variance with mainstream economic theory according to which an economy should operate in the neoclassical equilibrium, where output elasticities equal factor cost shares. The standard derivation of the neoclassical equilibrium from the maximization of profit or of time-integrated utility disregards technological constraints. We show that the inclusion of these constraints in our nonlinear-optimization calculus results in equilibrium conditions, where generalized shadow prices destroy the equality of output elasticities and cost shares. Consequently, at the prices of capital, labor, and energy we have known so far, industrial economies have evolved far from the neoclassical equilibrium. This is illustrated by the example of the German industrial sector evolving on the mountain of factor costs before and during the first and the second oil price explosion. It indicates the influence of the 'virtually binding' technological constraints on entrepreneurial decisions, and the existence of 'soft constraints' as well. Implications for employment and future economic growth are discussed.

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Cointegration of output, capital, labor, and energy

Cited by 33 publications

References 29 publications

Thermodynamic laws, economic methods and the productive power of energy

Thermodynamic laws, economic methods and the productive power of energy

Energy-Extended CES Aggregate Production: Current Aspects of Their Specification and Econometric Estimation

How energy conversion drives economic growth far from the equilibrium of neoclassical economics

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