The Underestimated Contribution of Energy to Economic Growth
28 Pages Posted: 20 Sep 2013
Date Written: September 19, 2013
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: Suggested Citation