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

The paper develops a theoretical model with di¤erent channels through which energy a¤ects economic growth. The conditions for a crowding out of capital accumulation by intensive energy use are derived. In the empirical part, estimations using a system with \u85ve simultaneous equations for a sample of 37 developed countries with ve-year average panel data over the period 1975-2004 are presented. It is shown that in the long run rising energy prices are not a threat to development. On the contrary, we \u85nd conditions under which decreasing energy input induces investments in physical and knowledge capital. A ten percent increase in energy prices is found to raise the growth rate by 0.4 percentage points