Economic growth and the transition from traditional to modern energy in Sweden

• Published in: Energy economics Vol. 46; pp. 56 - 65
• Main Authors: Kander, Astrid, Stern, David I.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.11.2014; Elsevier; Elsevier Science Ltd
• Subjects: Applied sciences; Carriers; Computer simulation; Cost; Cost engineering; Econometrics; Economic data; Economic development; Economic growth; Economic history; Economics; Economics and Business; Ekonomi och näringsliv; Ekonomisk historia; Energy; Energy economics; Energy industry; Energy use; Exact sciences and technology; General, economic and professional studies; Growth models; Industrial Revolution; Innovation; Mathematical models; Methodology. Modelling; Production; Samhällsvetenskap; Social Sciences; Studies; Sweden; Technological change; Sweden; Europe; O13; N14; Q43; N13; Technological change; Industrial Revolution; Economic history; O41; Power production; Energy transition; Energy economy; Case history; Energy source; Innovation; 013; Economic model; Substitution; Economic growth; Energy carrier; Economic impact; Ratio of economic flexibility
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2014.08.025

We examine the role of substitution from traditional to modern energy carriers and of differential rates of innovation in the use of each of these in economic growth in Sweden from 1850 to 1950. We use a simple growth model with a nested CES production function and exogenous factor-augmenting technological change and carry out a counterfactual simulation based on the econometric results. Even though the rate of technical change was higher for modern energy, innovation in the use of traditional energy carriers contributed more to growth between 1850 and 1890, since the cost share of traditional energy was so much larger than that of modern energy in that period. However, after 1890 we find that modern energy contributed much more to economic growth than traditional energy, but, increasingly, labor-augmenting technological change became the most important single driver of growth. •We examine the role of traditional and modern energy carriers in economic growth.•We use data from Sweden between 1850 and 1950.•We estimate a simple growth model and use it in counterfactual simulations.•Innovation in using traditional energy contributed most to growth from 1850 to 1890.•After 1890, modern energy contributed much more to economic growth.