The Role of Energy in the Industrial Revolution and Modern Economic Growth

REVIEW OF JOURNAL ARTICLES

Title: The Role of Energy in the Industrial Revolution and Modern Economic Growth

Author(s): David I. Stern and Astrid Kander

Publisher: The Energy Journal, Vol. 33 No. 3

© 2012 by the International Association for Energy Economics (IAEE).

In the course of reviewing this paper, it was discovered to be a quality academic paper of high repute. The study's main preoccupation was to examine how energy played a major role in the long run growth of the economy and also being crucial in explaining the Industrial Revolution, and ironically occupy a small share of the costs of production in today's advanced economies. It was discovered that the expansion in the supply of energy services over the last 200 years (1800 - 2000 A.D.) has reduced the apparent importance of energy in economic growth despite being an essential production input.

In the main analysis, a simple model that extends Solow's neoclassical growth model was used, it was programmed to include energy and estimate its parameters using a 200 years of Swedish data. The model succinctly shows that the expansion of energy services was the most important factor explaining growth until 1950 when labour-augmenting technical change becomes paramount. And as noted by frontline scholars, whom the authors cited copiously, the model explains the historical decline in the energy cost share in the Swedish data, which has been adjudged a stylized fact of economic development.

According to the authors, earlier writers in related fields posit that energy related innovation and the growth in the quantity and quality of energy play a crucial role in economic growth, as well as being important in explaining the Industrial Revolution. Another study on time-series analysis was also cited which shows that energy is needed in addition to capital and labour to explain the growth of GDP. However, it was alleged that the mainstream economics research has tended to downplay the importance of energy in economic growth, more especially as the principal models used to explain the growth process do not include energy as a factor of production. But the writers quickly pointed out and as was demonstrated in the model, the omission is probably due to the fact that energy has been very abundant in recent decades in developed economies and its cost share low, so that the constraints imposed by energy availability on economic growth are weaker than they were in the centuries past.

Meanwhile, when viewed in the context of developing economy, the cost of energy is still a huge component of the overall cost of production, and even poses a perennial inhibiting factor confronting business firms and thus constraining economic growth and development in Sub-Sahara Africa and other third world countries.

The theoretical model used aims at explaining a major shift in economic history. It makes use of a general constant elasticity of substitution (CES) production function rather than the more commonly used Cobb-Douglas function, which imposes an elasticity of substitution of one. The analysis shows how energy availability