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Useful work and information as drivers of growth

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The history of growth theories is reviewed. A semi-empirical endogenous growth theory is proposed. It is based on a model of the economy as a multi-stage materials processing system. Growth is simulated by a two-parameter production function with two traditional factors, labor and capital, and a non-traditional factor. The non-traditional factor can be interpreted as `useful= (physical) work output, as distinguished from energy (exergy) inputs. It is calculated from energy (exergy) inputs multiplied by the average energy conversion efficiency, which is a function of time. This theory `explains= past US growth from 1900 through 1973-74 with satisfactory accuracy but it slightly underestimates subsequent growth (i.e. it leaves a small unexplained residual) for the period after 1975. However, by subdividing capital stock (and services) into traditional and information-technology components, the authors are able to extend the theory to explain US economic growth accurately through 1998. The revised production function has only three independent parameters, determined by statistical fitting. The new theory also has implications for future economic growth, energy and environmental policy that differ significantly from the traditional growth theory. These implications are discussed very briefly.

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