Economic Growth and the Transition from Traditional to Modern Energy in Sweden

Abstract

We examine the role of substitution from traditional to modern energy carriers and of differential rates of innovation in the use of each of these in Sweden from 1850 to 1950. We use a simple growth model with a nested CES production function and exogenous factor augmenting technological change and carry out a growth accounting decomposition based on the econometric results. Energy and energy augmenting technological change contributed more than a third of the economic growth in this period. Even though the rate of technical change was much larger for modern energy, innovation in the use of traditional energy carriers contributed more to growth between 1850 and 1890, since the cost share of traditional energy was so much larger than that of modern energy in that period. However, after 1890 we find that modern energy contributed much more to economic growth than traditional energy, but increasingly labor augmenting technological change and capital accumulation became the most important drivers of growth in the final decades of the period. | T H E A U S T R A L I A N N A T I O N A L U N I V E R S I T Y Keywords JEL ClassificationO13, O41, Q43, N13, N14 Address for correspondence:(E) cama.admin@anu.edu.auThe Centre for Applied Macroeconomic Analysis in the Crawford School of Public Policy has been established to build strong links between professional macroeconomists. It provides a forum for quality macroeconomic research and discussion of policy issues between academia, government and the private sector.The Crawford School of Public Policy is the Australian National University's public policy school, serving and influencing Australia, Asia and the Pacific through advanced policy research, graduate and executive education, and policy impact. | T H E A U S T R A L I A N N A T I O N A L U N I V E R S I T Y AbstractWe examine the role of substitution from traditional to modern energy carriers and of differential rates of innovation in the use of each of these in Sweden from 1850 to 1950. We use a simple growth model with a nested CES production function and exogenous factor augmenting technological change and carry out a growth accounting decomposition based on the econometric results. Energy and energy augmenting technological change contributed more than a third of the economic growth in this period. Even though the rate of technical change was much larger for modern energy, innovation in the use of traditional energy carriers contributed more to growth between 1850 and 1890, since the cost share of traditional energy was so much larger than that of modern energy in that period. However, after 1890 we find that modern energy contributed much more to economic growth than traditional energy, but increasingly labor augmenting technological change and capital accumulation became the most important drivers of growth in the final decades of the period. JEL Codes: O13, O41, Q43, N13, N14 Acknowledgements:We thank the Australian Research Council for support under Discovery grant DP120101088: "Energy Transitions: Pa...

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

“…For our purposes, we define aggregate production functions as those applied at sector [1,2] or economy-wide [3][4][5] levels.…”

“…It also places a responsibility on the "downstream" users of empirical CES study results, to be aware of such aspects and their implications. Third, though single aspect literature of CES production function theory and empirical usage [5,26,[30][31][32][33][34] exists, without a succinct collation of the most important issues and options, analytical blindspots and poorly specified functions are more likely, which may have significant impacts on the estimated parameters, and ultimately energy policy.…”

“…Several reasons may explain this. First, is the "pull" from energy-related questions including macroeconomic energy rebound [110,111], the contribution of energy to reducing exogenous growth [112], and climate and economic implications of energy transitions [5,113]. Second, since the elasticity of substitution (σ) is an important parameter in economics [114,115], significant effort in capital-labour-energy CES empirical analysis is directed to estimate values of σ [1,33,46,83].…”

“…However, when energy is added to the production function, things change, as this "intermediate" input is used by industry to produce final "products" for end consumers. Ideally, the output measure should be selected "so that the total value of output is equal to the total value of inputs" ( [5], p. 59). Those working with capital-labour-energy-materials (KLEM) productivity databases, such as O'Mahony and Timmer [125], use gross output as the economic output measure.…”

Energy consumption, financial development and economic growth in India: New evidence from a nonlinear and asymmetric analysis

“…Because investigating the linkage between renewable energy and economic growth is not the principal objective of our study, we will not develop this part further. More details can be found in recent studies, such as Edenhofer et al (2013), Kander and Stern (2014), Dogan (2015b), Alper and Oguz (2016), Bhattacharya et al (2016), Dogan (2016b), Marques et al (2016), Paramati et al (2016) and Inglesi-Lotz (2016).…”