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Energy-GDP Relationship

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The New Palgrave Dictionary of Economics

Abstract

Energy use and GDP are positively correlated, although energy intensity has declined over time and is usually lower in richer countries. Numerous factors affect the energy intensity of economies, and energy efficiency is obviously one of the most important. However, the rebound effect might limit the possibilities for energy efficiency improvements to reduce energy intensity. Natural science suggests that energy is crucial to economic production but mainstream economic growth theory largely ignores the role of energy. Ecological economists and some economic historians argue that increasing energy supply has been a principal driver of growth. It is possible that historically energy scarcity imposed constraints on growth, but with the increased availability of modern energy sources energy’s importance as a driver of growth has declined. Empirical research on whether energy causes growth or vice versa is inconclusive, but meta-analysis finds that the role of energy prices is central to understanding the relationship.

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Stern, D.I. (2018). Energy-GDP Relationship. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_3015

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