The Underestimated Contribution of Energy to Economic Growth

28 Pages Posted: 20 Sep 2013

See all articles by Robert U. Ayres

Robert U. Ayres

INSEAD - Economics and Political Sciences

Jeroen C. J. M. Van den Bergh

Autonomous University of Barcelona - Faculty of Economics and Business Studies; Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Dietmar Lindenberger

University of Cologne - Institute of Energy Economics

Benjamin Warr

INSEAD

Date Written: September 19, 2013

Abstract

Standard economic theory regards capital and labour as the main factors of production that satisfy the “cost-share theorem”. This paper argues that when a third factor, namely energy, is added physical constraints on substitution among the factors arise. We show that energy is a much more important factor of production than its small cost share may indicate. This implies that continued economic growth along the historical trend cannot safely be assumed, notably in view of considerably higher energy prices in the future due to peak oil and climate policy.

Keywords: Economic Growth, Economic Theory, Energy Cost Share, Technological Constraints, Peak Oil, Climate Policy

JEL Classification: D24, O44, Q43

Suggested Citation

Ayres, Robert U. and Van den Bergh, Jeroen C. J. M. and Lindenberger, Dietmar and Warr, Benjamin, The Underestimated Contribution of Energy to Economic Growth (September 19, 2013). INSEAD Working Paper No. 2013/97/TOM/EPS/Social Innovation Centre, Available at SSRN: https://ssrn.com/abstract=2328101 or http://dx.doi.org/10.2139/ssrn.2328101

Robert U. Ayres

INSEAD - Economics and Political Sciences ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
(33) (0)1 60 72 40 11 (Phone)
(33) (0)1 60 74 55 00/01 (Fax)

Jeroen C. J. M. Van den Bergh

Autonomous University of Barcelona - Faculty of Economics and Business Studies ( email )

Campus Bellaterra
Barcelona, 08193
Spain

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Dietmar Lindenberger (Contact Author)

University of Cologne - Institute of Energy Economics ( email )

Alte Wagenfabrik
Vogelsanger Strasse 321a
Cologne, 50827
Germany

Benjamin Warr

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

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