Productive energy use and economic growth: Energy, physical and human capital relationships

- This study analyses the role of energy on economic growth within a growth framework.
- It is analyzed for OECD, BRIC, NAFTA, East Asia, East Europe and EU15.
- A translog production function with productive energy use was estimated.
- BRIC countries have higher elasticities with respect to energy and EU15 lower.
- Energy is weakly substitutable with physical capital and stronger with human capital.

Ecological and biophysical economists and historians of economics consider that availability of energy inputs has played a key role in driving economic growth in industrialized and emerging economies. Nevertheless, being very sensitive to structural characteristics or stages of economic development, the strength of this link differs among countries. This study analyzes the role of energy in economic growth from a geographical standpoint by estimating an aggregate translog production function, with human and physical capital and productive energy use as production factors, within a growth framework. Panel data of 38 major countries for the period from 1995 to 2007 were used. The strength of the link between energy and growth is analyzed for the whole sample and the following relevant country groups: OECD, BRIC, NAFTA, East Asian, East European and EU15 countries. Obtained results show that the calculated productivity elasticities with respect to energy use are positive for all country groups. BRIC countries have higher elasticities, around 0.37, and EU15 countries have lower elasticities, around 0.12. Weak substitutability relationships between energy and capital are observed for all groups, except for BRIC and East European countries, which show complementarity relationships.