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

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Abstract
The paper first develops a theoretical model with different sectors, each providing a channel for an impact of energy prices on growth. In the short run, growth is hampered by increasing energy prices. In the long run, however, capital accumulation may be crowded out by energy use. This happens in the sectors with poor substitution possibilities between primary inputs where growth increases with rising energy prices. In the empirical part, estimations using di¤erent channels and energy sources with five-year average panel data for a sample of 44 developed countries in the period 1975-1999 are presented. It is shown that, for a large variety of constellations, rising energy prices are not a threat to economic development, they can even be positive for growth.

Suggested Citation

  • Lucas Bretschger, 2006. "Energy Prices, Growth,and the Channels in Between: Theory and Evidence," CER-ETH Economics working paper series 06/47, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:06-47
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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
    • 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
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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