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Either increase supplies or increase efficiency: evidence of causality between the quantity and quality of energy consumption and economic growth in the US

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We describe the results of empirical analysis to investigate the causal relationship between the quantity and the manner in which energy is consumed and economic growth in the US over the second half of the 20th century. We compared the results from two multivariate models of GDP, capital, labour with either exergy or useful work representing energy inputs. Our results provide evidence of unidirectional causality running from either energy measure to GDP. For exergy, causation stems from both the short-term and long-term error correction terms. For useful work, capital and labour, the causal effect on GDP stems from the long-term error-correction terms. We conclude that both exergy inputs and the useful work they provide, in combination with capital and labour inputs, are necessary for continued economic growth. To maintain long-term growth there is a choice, either increase energy supplies or increase the efficiency of energy use. Facing energy security, cost and environmental impact issues the latter option may be the more sensible.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2008/2008-62.pdf

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Copyright INSEAD. All rights reserved