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Theoretical growth models vs. real world evidence: implications for greenhouse gas policy (RV of 97/67/EPS)

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Conventional economic growth theory, as developed originally by Solow, is now in need of modification. In particular, it is necessary to explain and endogenize the residual, usually-termed "technical progress". To do so it must reflect the existence of some "growth engine" apart from population growth and the traditional savings-investment-capital accumulation mechanism. A growth engine is a positive feedback loop involving declining costs and increasing demand. There are a number of such feedback loops involving technology in different ways. However several of the identifiable growth engines of the past are dependent on resource availability (especially of fossil fuels) and the state of technology. Based on both qualitative and quantitative evidence, the paper concludes that energy (or exergy) has been and still remains a major factor of production, despite the small share of payments to natural resource owners in the national accounts.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp1998/98-63.pdf

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