Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013

Abstract

Abstract:We examined data on fuel consumption and costs for the years 1950 through 2013, along with economic and population data, to determine the percent of U.S. gross domestic product (GDP) spent each year on fuels, including fossil fuels and nuclear ore, and the growth of the economy. We found that these variables are inversely correlated. This suggests that the availability and cost of energy is a significant determinant of economic performance. We believe this relation is consistent with analyses based on the energy return on investment (EROI) concept in that increasingly scarce, and hence expensive, fuels are a drag on economic growth. The best-fitting linear equation relating the percent of GDP (energy cost share) and year-over-year (YoY) GDP change variables suggests that a threshold exists in the vicinity of 4%; if the percent of GDP spent on fuels is greater than this, poorer economic performance has been likely. Currently, about 5% of GDP is spent on fuels; most of this is for liquids. Continued weak economic performance appears likely unless improvements in energy efficiency, on the order of a factor of 3 for liquid fuels, and/or a more rapid adoption of renewable or nuclear energy sources can be achieved, provided that the EROI of these new sources proves to be sufficiently high.

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

“…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.…”

Comparing World Economic and Net Energy Metrics, Part 3: Macroeconomic Historical and Future Perspectives

“…Aucott and Hall [61] performed a similar calculation as in Table 1 for the US from 1950 to 2013. They found a significant negative correlation between f e,GDP and both ∆GDP and 1-year lagged ∆GDP (but slightly higher for a 0-year lag), whereas my US negative correlation is not statistically significant at 0-year lag.…”

The Correlation between Energy Cost Share, Human, and Economic Development: Using Time Series Data from Australasia, Europe, North America, and the BRICS Nations

“…Aucott & Hall [2] further echoed the ideas of Bashmakov [12] with regard to the energy cost-economic growth nexus. If economic performance is solely analysed and energy cost is not a significant driver of economic performance, then low energy costs should be associated with slow economic development.…”

“…Currently, mainstream economic thinking tends to neglect the importance of energy, chiefly because it is not identified as a primary factor of production, such as labour and capital [1][2][3][4]. The role of energy, more specifically energy consumption, as an essential driver of economic growth is acknowledged by ecological economists [1].…”

“…This is so because, in theory, less economic activity would lead to less demand for products, and ultimately a reduction in price. Conversely, if energy costs are related to economic growth, then low economic development should be characterised by an increase in energy costs [2]. Aucott & Hall [2] also compared the ECS of the US to the year-on-year change in GDP.…”