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Accounting for growth: the role of physical work

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It is argued that the consumption of exergy (available useful energy) has been, and still is, an important driver of economic growth. This paper tests several related hypothesis for explaining US economic growth since 1900. The authors show that if raw exergy inputs are included with capital and labor in a production function, the historical growth trajectory cannot be reproduced without an exogenous 'technical progress' multiplier (the Solow residual). However, introducing the sum total of all types of physical work (by animals, prime movers and heat transfer systems) as a factor of production, the actual growth path is reproduced with high accuracy from 1900 until the mid 1970s and with fair accuracy since then. The unexplained residual during this recent period amounts to about 12% of total growth during the recent quarter century. They suspect that applications of information technology are mainly responsible.

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en

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application/pdf

Resource resource URL

http://flora.insead.edu/fichiersti_wp/inseadwp2002/2002-70.pdf

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Copyright INSEAD. All rights reserved