The Economic Growth Engine

The Economic Growth Engine

How Energy and Work Drive Material Prosperity

Robert U. Ayres and Benjamin Warr

The historic link between output (GDP) growth and employment has weakened. Since there is no quantitively verifiable economic theory to explain past growth, this unique book explores the fundamental relationship between thermodynamics (physical work) and economics.

Chapter 9: Economic Growth and Development: Towards a Catch-up Model (Simplified REXSF Model)

Robert U. Ayres and Benjamin Warr

Subjects: economics and finance, energy economics, environment, ecological economics


9. Economic growth and development: towards a catch-up model (simplified REXSF model)* BACKGROUND 9.1 The methodology described in the previous chapters is obviously too complicated to be applicable to developing countries with, in many cases, short histories and incomplete or unreliable historical data. Yet there is an increasingly urgent need to develop better forecasting and scenarioanalysis tools that are simpler to implement and that do not depend from the outset on two critical but risky assumptions. The first assumption is that global economic growth is automatic and exponential, that is, that it depends on exogenous technological progress – or ‘total factor productivity’ (TFP) – which increases each year by something like 2.5 percent, on average, despite short-term fluctuations. The second critical but very risky assumption is that it (the growth trend) is independent of energy consumption and, therefore, independent of energy production and availability. The dangers of making long-term policy decisions, and long-term capital investments, based on faulty assumptions, need not (indeed, cannot) be addressed here. However, it is worthwhile pointing out that a variety of organizations, including the World Bank, the International Monetary Fund (IMF), NATO, OPEC, the OECD, the Inter-governmental Panel on Climate Change (IPCC), the executive branches of the European Union (the EEC) and major national governments, routinely base policy decisions on long-term scenarios that incorporate such assumptions, albeit usually hidden. Policies to respond to the challenge of global emissions of carbon dioxide and other greenhouse gas (GHG) emissions clearly depend upon forecasts of economic growth and energy...

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