Fuel for Economic Growth?

Riksbank Research Paper Series No. 123

Sveriges Riksbank Working Paper Series No. 299

46 Pages Posted: 13 Aug 2015

See all articles by Johan Gars

Johan Gars

The Royal Swedish Academy of Sciences - Beijer International Institute of Ecological Economics

Conny Olovsson

Sveriges Riksbank

Date Written: May 2015

Abstract

We set up an endogenous growth model in which the efficiency of both capital and fossil energy can be improved, whereas the efficiency of one alternative energy source is limited. With capital and energy as complements, there exist two steady states: one stagnant where energy is fully derived from the alternative energy source, and one with balanced growth where energy is fully sourced from fossil fuel. Heterogeneity in initial TFP levels can generate the Great Divergence. The demand for fossil fuel in technologically advanced countries drives up its price and makes fossil fuel too costly in less advanced countries that choose the alternative and stagnant energy input.

Keywords: Growth, Malthusian stagnation, Industrial Revolution, Great Divergence, Technological progress

JEL Classification: O11, O14, O33, O41, O50

Suggested Citation

Gars, Johan and Olovsson, Conny, Fuel for Economic Growth? (May 2015). Riksbank Research Paper Series No. 123, Sveriges Riksbank Working Paper Series No. 299, Available at SSRN: https://ssrn.com/abstract=2635376 or http://dx.doi.org/10.2139/ssrn.2635376

Johan Gars

The Royal Swedish Academy of Sciences - Beijer International Institute of Ecological Economics ( email )

The Royal Swedish Academy of Sciences
P.O. Box 50005
S-104 05 Stockholm, SE-104 05
United States

Conny Olovsson (Contact Author)

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

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