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

ETH Zurich Economics Working Paper No. 06/47

24 Pages Posted: 21 Feb 2006

See all articles by Lucas Bretschger

Lucas Bretschger

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Date Written: January 2006

Abstract

The paper first develops a theoretical model with di¤erent 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.

Keywords: Energy Prices and Growth, Endogenous Capital Accumulation, Structural Change, Panel Data

JEL Classification: Q43, Q56, O41, O47

Suggested Citation

Bretschger, Lucas, Energy Prices, Growth, and the Channels in between: Theory and Evidence (January 2006). ETH Zurich Economics Working Paper No. 06/47, Available at SSRN: https://ssrn.com/abstract=884200 or http://dx.doi.org/10.2139/ssrn.884200

Lucas Bretschger (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

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