Energy prices, growth, and the channels in between: theory and evidence

Working paper

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.

Authors: Bretschger, L

• Publication status: Published
• Publisher: University of Oxford
• Series: OxCarre Papers
• Publication date: 2010-02-24
• Paper number: 34
• Keywords: panel data; endogenous capital accumulation; structural change; energy prices and growth