Economic Growth and the Transition from Traditional to Modern Energy in Sweden

During my recent visit to Sweden, we successfully revised and resubmitted a paper, titled: "Economic Growth and the Transition from Traditional to Modern Energy in Sweden". We have now made it available as a working paper in the CAMA Working Paper series.

This paper follows up on the paper we published last year in the Energy Journal. That paper looked at the paradox of energy and growth. How could energy have been important in the Industrial Revolution yet be a fairly small portion of production costs today. The new paper looks at the relative contributions of changes in the quantity, quality, and related technology (so called factor augmenting technical change) of traditional (biomass, animal power) and modern (fossil fuels and hydro-electricity) to economic growth in Sweden between 1850 and 1950. This was the period of the energy transition to modern energy in Sweden.

The graph shows that in 1850 less than 5% of energy in Sweden was derived from modern energy sources. By 1950 around 80% was. There are two large spikes in the share of traditional energy associated with the World Wars when imports of fossil fuels were restricted. The share of biomass in Sweden today is higher than it was in 1950. Because the share of modern energy was so small in the early years, even though the rate of improvement in the efficiency with which it was used was in fact higher than that of traditional energy, it contributed less to growth than traditional energy did. Over time, as the share of modern energy increased, this changed so that modern energy innovation and the increase in the use of (quality adjusted) modern energy contributed more to growth. However, according to our data and model, innovation in energy came to a halt towards the end of this period. By contrast, the role of labor augmenting technical change, which includes both better management of labor, increased human capital per worker etc. accelerated smoothly over time to become the most important driver of growth. Of course, Stern and Kander (2012) found this too. It's nice that the results in the two papers match! :)

The table presents the detailed growth accounting results. We actually computed these contributions for every year and then the table provides averages for each 20-year period. Betwen 1870 and 1910 growth was at first slower and then faster than our simple model fitted to the data predicts. But we found that giving the model more degrees of freedom to fit the wiggles in the data could lead to nonsensical results. It's also possible that it is the data that is mismeasured.

What the data implies is that it took a long time for the innovation in using modern energy to diffuse through the economy as the quantity of modern energy used increased. The following graph shows the rate of (factor-augmenting) technological change associated with each of the three inputs (the model also has capital but we assume its rate is zero):

We probably shouldn't take the negative values too seriously, but as noted above, fitting a more complex model was challenging. There was very rapid innovation in the use of modern energy in 1850-1890 starting at about a 7% per year increase in productivity and falling to about 3% a year. But the contribution to growth in the table started at 0.03% per year and rose to 0.08% per year over this time. Growth accounting type exercises, by attributing all the effects of an innovation to the year it happens, are extremely conservative. In later years, when the quantity of modern energy was much larger, that energy contributed more to growth than it would otherwise have done because those earlier innovations had permanently increased the marginal product of modern energy (ceteris paribus of course...).

Penn World Table 8.0

The new version of the Penn World Table - version 8.0 - has recently been made available and is now hosted at University of Groningen in the Netherlands. An NBER working paper by Feenstra et al. describes what is new in PWT 8.0.

The new edition of the dataset introduces several new measures of GDP and the working paper is mostly devoted to discussing them as well as the relationship between PPP exchange rates (relative to market exchange rates) and the level of income known as the Penn or Balassa-Samuelson Effect.

GDP is now given both in terms of the output side and the expenditure side. The difference between these is that real output side GDP (RGDP(O)) deflates expenditure on final goods (the standard macro-economic C+I+G - consumption, investment, and government expenditure), exports (X), and imports (M) using separate deflators:

The expenditure side real GDP (RGDP(E)) uses only the final output deflator to deflate the GDP. Feenstra et al. argue that the former expresses better the real production level in each country and the latter the standard of living in each country. Previous versions of the Penn World Table used the expenditure side measure only. The difference between the two measures is due to the terms of trade. Countries with relatively expensive exports and relatively cheap imports will have living standards (RGDP(E)) that are higher than their real productive capacity (RGDP(O)).

GDP is also given in "current" and "constant" prices. This terminology is confusing because usually current prices mean prices not adjusted for inflation and constant prices mean adjusted for inflation. Here constant prices mean the reference prices from a given benchmark year -  in the current version 2005 - and current prices mean using the reference prices from each year though these are adjusted for US inflation. These differ because the reference prices change over time. The constant price series RGDP are better for comparisons across time while the current price series CGDP can be used to compare countries at a single point in time.

Finally, there is also an RGDP(NA) series that uses the growth rates in each country's own national accounts to extrapolate GDP in that country in years other than the benchmark year. National accounts growth rates were used exclusively in previous versions of the Penn World Table. This series can differ substantially from the RGDP(E) series as is shown by this graph for India:

According to RGDP(E) living standards in India fell from 1975 to 1985 while according to India's own national accounts they rose. Which is right? Well, it depends what you want to measure. The change in RGDP(E) measures the change in relative living standards across countries while that in RGDP(NA) measures the change in real expenditure weighted according to the budget shares in the country in question. They differ because budget shares differ across countries. RGDP(E) will also grow faster than RGDP(NA) in a country experiencing an improvement in the terms of trade as, for example, Australia did in the years up to 2009 due to the mining boom.

PWT 8.0 also includes capital stock, human capital, and total factor productivity series. The former was included for some countries in some previous versions but not version 7. The latter are both new.

So, all this sounds more complicated than using The Economist's Big Mac Index or previous versions of the PWT. The User Guide gives a less technical guide on how to use the data.

Meta-Analysis Paper Accepted at The Energy Journal

My paper with Stephan Bruns and Christian Gross on meta-analysis of the energy-GDP causality literature has been accepted (subject to some minor editing corrections) at the Energy Journal. Back in March, I wrote a blogpost about this paper when we put out the working paper version. In this final version we mainly added some separate results for OECD and non-OECD countries, which while different do not change the overall results very much. As you will see, both my coauthors have nicely developing research track records and, if you are hiring, they are looking for jobs (probably in Germany or nearby countries)!

Librello Publishing

Librello Publishing is a new open access publisher with a model somewhat similar to PeerJ. But while PeerJ has lifetime memberships that then allow you to submit as many papers as you want (for $299 membership and one or two papers a year for the discount classes), Librello is using annual memberships of 156 Swiss Francs. As its five journals are mostly in the social sciences this higher pricing is necessary as the average number of authors is lower. In practice this will likely amount to the submission fee which many subscription journals already charge. For example, the Energy Journal requires you to either pay USD 100 per submission or be a member of the IAEE. Assuming a 50-70% rejection rate this is still very much below the pricing of a conventional open access journal like PLoS ONE, which is only profitable because it operates on such a huge scale. However, this looks to be a totally legitimate publisher with a respectable editorial board for the Challenges in Sustainability journal.

Revising and Resubmitting...

Sorry, I haven't posted much recently... I'm in Sweden, working with Astrid Kander, so far we've only been working on this paper we are trying to revise and resubmit. It's for the top journal in economic history and so we are really working hard on it. We'll put up a working paper soon when it is ready. In the middle of all that I just saw this blogpost on the processing of trying to get articles published. Seems this guy tries to hit all the top journals in political science each time with only limited success. Some of my papers have gone to about four journals before getting a revise and resubmit but mostly they get published in the first or second one we try. The paper I am working on was rejected from a good general interest economics journal first. But that only took a day :) Desk rejection is common in economics now which maybe is speeding the process up a little. Doesn't seem like polisci has caught onto that yet. But if you are working in environmental and resource economics and one general interest journal rejects your paper it's probably not productive to send it to more, I think?

Other interesting points in the article - importance of avoiding sloppiness - a lot of effort needs to go into polishing articles and revising and resubmitting if you want to get published in good journals. I think a lot of beginning researchers underestimate the effort involved in that. Also that researchers are often surprised by which of their articles get into good journals and how many citations they get. This is somewhat true. When I do research and write a paper I am always thinking it is going to be a good one. I think though that at the submission stage it can be clear that a paper is not the greatest. But sometimes I have been surprised that some of my papers got few citations, while others got a lot.

Xenophon Opposes "Direct Action", Favours Carbon Trading

Senator Xenophon, a South Australian independent, says that he won't back repeal of the carbon pricing legislation as promised by the Liberal Party unless it is replaced with a carbon trading scheme similar to the one proposed by Frontier Economics in a report commissioned by Xenophon and the Liberal Party.

Even if Xenophon loses his seat in the Senate he will remain in parliament till 1 July 2014 but he looks to be certainly re-elected as the Liberal-National coalition looks certain to be elected as the new government. Of course, we don't know if he will have the balance of power when the new Senate takes its seats or whether the Liberals might call a double dissolution election.

The Liberals "direct action" plan might make some sense as a small scheme to get emissions reductions in the agricultural sector etc. but its big flaw is that as it costs taxpayer money it requires raising taxes elsewhere, ceteris paribus, to pay for the payouts.

An even simpler approach than the Frontier Economics trading model would be carbon emissions trading with totally free allocation of permits. This is no longer a "big new tax" because the government doesn't gather any revenue from it. It doesn't require spending except for monitoring and other administration. On the other hand, it isn't as efficient as auctioned permits because it doesn't allow the reduction of other taxes in a "green tax reform".

I'm sceptical that the Liberals will agree to Nick Xenophon's demands or modify carbon trading to a free permit system. A double dissolution election is not unlikely. Free allocated permit trading that could be modified later would though be a better outcome I think though I am actually a supporter of carbon taxes rather than emissions trading.

World Congress of Environmental and Resource Economics 2014

The European Association of Environmental and Resource Economics (EAERE) and the US based Association of Environmental and Resource Economics hold a joint meeting every four years called The World Congress of Environmental and Resource Economics. 2014's meeting will be in Istanbul from 28 June to 2 July. The deadline for submission of sessions is 1 December 2013 and for individual papers 15 January 2014. Submissions are peer reviewed. Details of submission requirements are yet to be released.

I was at the first of these World Congresses in Venice in 1998. But I haven't been to one since. I've always wanted to visit Turkey, but the nearest I've got is Istanbul airport this year in June. So, this looks like a good opportunity.

Bets on the Coalition Winning the Australian Federal Election Paid Out Early

There is still more than a week of campaigning to go, but Sportsbet has already paid out bets on the Coalition the election. Odds offered by other bookmakers also predict a landslide win for the Coalition. Research shows that betting markets predict elections better than opinion polls.

Don't Compare Absolute Levels of GDP from Different Integrated Assessment Models

This article on Climate Progress claims that because world GDP is higher under the RCP 2.6 emissions scenario than under RCP scenarios with higher levels of carbon emissions that means that cutting emissions is good for the economy:

Nothing could be further from the truth. The reason GDP varies so much under the different scenarios is because each of the four scenarios was produced by a different modelling team using a different integrated assessment model. The RCP 2.6 team used the IMAGE model, which is a model that is relatively optimistic about the amount of economic growth that will occur under business as usual. In the EMF22 exercise it had one of the highest levels of GDP under the reference scenario. The other modelling teams used models with lower baseline scenarios for economic growth. This explains most of the difference. Our current research on modelling the costs of climate change shows that it's likely that models that find economic growth to be harder to achieve anyway also find that cutting emissions is harder. So probably they had to use a model like this to be able to model the RCP 2.6 scenario. In EMF22 most models couldn't model the more extreme scenarios.

Edward Elgar Books Added to Scopus

In the last few days, Edward Elgar books published between 2009 and the present have been added to Elsevier's Scopus citation index. I reported a couple of years ago about the Web of Science adding a book citation index that would at first feature Elgar books. Some Elsevier book series are already included in Scopus, but I'm surprised that they would add Elgar's books before doing a more comprehensive selection from Elsevier. Elsevier doesn't publish much in the area of economics but I just checked a couple of recent books from their list and they aren't included in Scopus. Anyway, this is a further narrowing of the gap in coverage by the three main citation index providers: Google, Thomson Reuters, and Elsevier.

The Environmental Kuznets Curve in 500 Words... Well, Almost

I was asked to write an article about the EKC in 500 words including references. This is my draft:

The environmental Kuznets curve (EKC) is a hypothesized inverted U-shape relationship between various environmental impact indicators and income per capita. In the early stages of economic growth environmental impacts and pollution increase, but beyond some level of income per capita economic growth leads to environmental improvement. The name comes from the similar relationship between income inequality and economic development called the Kuznets curve. Grossman and Krueger (1991) introduced the concept in an analysis of the potential effects of the North American Free Trade Agreement. The EKC also featured prominently in the 1992 World Bank World Development Report and has since become very popular in policy and academic circles. The EKC is seen as empirical confirmation of the interpretation of sustainable development as the idea that developing countries need to get richer in order to reduce environmental degradation.

However, the EKC is a controversial idea and the econometric evidence that is claimed to support it is not very robust (Stern, 2004). It is undoubtedly true that some dimensions of environmental quality have improved in developed countries as they have become richer. City air and rivers have become cleaner since the mid 20th Century and in some countries forests have expanded. But the overall human burden on the global environment has continued to increase and the contribution of developed countries to problems such as climate change has not been reduced. Carbon dioxide emissions have declined over recent decades in only a few European countries. Therefore, it does not seem to be generally true that economic growth eventually reduces environmental degradation. There is also evidence that emerging economies take action to reduce severe pollution (Stern, 2004). For example, Japan cut sulfur dioxide emissions in the early 1970s following a rapid increase in pollution when its income was still below that of the developed countries (Stern, 2005) and China has also acted to reduce sulfur emissions in recent years (Xu et al., 2009).

Alternatively, while the scale of economic activity increases environmental impacts, improvements in technology can reduce these impacts according to the famous IPAT identity (Impact = Population * Affluence * Technology). If improvements in technology occur across countries irrespective of their level of income, in developed countries, where economic growth is slow, impacts would decrease over time (Brock and Taylor, 2010) while rapid economic growth in emerging economies would overwhelm the rate at which technology improved resulting in increasing impacts. Thus the apparent EKC for some pollutants might be a result of slower economic growth at higher income levels rather than due to the increased income itself. Further research is needed to determine the separate roles of growth rates and income levels.

References
Brock, W. A. and M. S. Taylor (2010) The green Solow model, Journal of Economic Growth 15: 127–153.
Grossman, G. M. and A. B. Krueger (1991) Environmental impacts of a North American free trade agreement, National Bureau of Economic Research Working Paper 3914.
Stern D. I. (2004) The rise and fall of the environmental Kuznets curve, World Development 32(8): 1419-1439.
Stern D. I. (2005) Beyond the environmental Kuznets curve: Diffusion of sulfur-emissions-abating technology, Journal of Environment and Development 14(1): 101-124.
Xu, Y., R. H. Williams, and R. H. Socolow (2009) China’s rapid deployment of SO2 scrubbers, Energy and Environmental Science 2: 459-465.

Sexual Activity and Wages

I expect that, like the "male organ" paper I commented on a couple of years ago, a new paper by Nick Drydakis on "Sexual Activity and Wages" will get a lot of hits. My wife saw it mentioned on this Chinese website.

Using Greek survey data, the paper finds that the frequency of sexual activity is positively correlated with wages and that this result is robust to a large number of control variables including psychological traits, age, incidence of various health problems, and marital status. But you can't control for everything and you have to work with the data you have available. One thing that I think is likely to be very important isn't controlled for - having children. I would expect that this is negatively correlated with frequency of sexual activity and, for women at least, is associated with lower wages. What do you think? Is this is a critical issue for this paper?

Crawford School Rolls Out New Academic Profiles

The reason many academics start their own websites is the usually very slow pace at which profiles on official university websites are updated. Often a web profile will list publications from 2009 as being "in press" or worse. A simple solution is to allow academics to update their own pages. In the past this would have resulted in very unpretty website full of all kinds of strange edits. But now content management systems allow users to make changes to content without being able to damage the overall look. Well, that's the theory, anyway. Today, the Crawford School rolled out new academic profiles that each individual academic can edit using the Drupal content management system. I've already updated my publication list so that my PLOS ONE paper is no longer listed as "in press" two years on.

Explaining the Decline in Australian Electricity Use

Some interesting graphs in the Business Spectator that help explain the recent decline in electricity use in Australia. Uptake of rooftop solar by consumers is a big part of the story as official electricity use doesn't include self-generation. Here is the graph for South Australia, which is the most dramatic:



The decline in electricity closely matches the solar intensity curve over the day.

Growth in Oil Reserves 2011-12

 

I'm updating my lecture on fossil fuels for my Energy Economics class. BP released its latest Statistical Review of World Energy about a month ago and I'm taking my first look at it. The graph above shows the ten largest increases in oil reserves by country. I used the reserve data for 2012 in this year's report and the reserve data for 2011 in last year's report to calculate the difference. Some of the changes in reserves have been backdated in the current report. The US comes in third with 4.1 billion barrels. US reserves have increased by 6.6 billion barrels or around 15% since the fracking boom took off. Of course, this doesn't reflect the amount of oil discovered as there is ongoing production. But US reserves remain at around 2% of the world total. In terms of increases in proven reserves this isn't yet revolutionary or game changing, I think.

RePEc Most Cited and Most Citing

RePEc citation profiles now tell you who are the ten authors who cite your work the most and who are the ten authors you cite the most. At least, I don't remember seeing this feature before. Pretty predictably the authors citing me the most are working on issues around the environmental Kuznets curve and energy-GDP causality. The authors I have cited the most are EKC researchers and econometricians. I'm a bit surprised that Peter Phillips is the econometrician I have cited the most. Would have thought Clive Granger would have gotten more cites from me.

2014 IAEE Conference in New York City

Next year's IAEE international meeting is in New York City from 15th to 18th June. I went to my first IAEE meeting in 2012 in Perth, this year's meeting was in Korea and I was tempted to go as I enjoyed my previous visit to Korea but it clashed with everything else I was doing this northern summer. In Perth I gave a presentation on the stylized facts of energy and economic growth. Until recently there was only a presentation and no paper. But I have been working recently with Zsuzsanna Csereklyei at WU on turning the presentation into a real paper. Maybe I could present on it again in New York? Some of the facts have changed a little since my presentation, as we have analyzed the data... but only my energy economics class has seen the new version.

... and Now the Old Reader Shuts Down to Most Users...

After Google Reader shut down I migrated to the Old Reader, which offered a similar user interface. But they have been swamped with migrants from Google Reader and suffered a major crash and outage. They have decided to throw out all users who joined since 13th March unless they have donated money. I don't remember seeing a donate button. I would have been happy to pay for the service but the owners aren't interested in making money apparently. Now I have to move again. Seems that inoreader is the next port of call. Wonder how long it will last... Seems that anyone who could sell an application to run on users' machines that would help them access RSS feeds instead of a web-based RSS reader site would be able to make a lot of money.

P.S. 3:23pm In fact there is at least one application based RSS reader for Mac: NetNewsWire. Thanks to Chris Short for the recommendation. For the moment, InoReader is looking good, but if it goes the way of my previous two readers, I will give NetNewsWire a serious look.

Travel Cost Study: Lake Nakuru National Park, Kenya

I was interested to see a working paper on pricing Lake Nakuru National Park, which I recently visited.  They find that the revenue maximizing price for foreign visitors is $1500 compared to a fee of $75 currently. It is hard to imagine it could be this high given the existence of substitutes, though obviously some foreign visitors would be able to pay it. For comparison our whole trip for four days to Lake Nakuru and Maasai Mara cost less per person than than this suggested entrance fee for one day at one national park.

Joel Mokyr is Very Optimistic on Future Technological Progress

I've made a few posts in the last half year or so on the potential slowing of the rate of technological change and economic growth and the implications of continued technological change for the distribution of income. Economic historian Joel Mokyr discusses some of these issues in a very optimistic piece on the future of technological change and economic growth. He sees no real limits to advances in technology and sees the implications for the future of labor as positive.

U.S. Employment Trends

Some very interesting trends in US employment that I saw in a free newsletter I subscribe to. The data is from the Federal Reserve Bank of St Louis. Total US employment has partially recovered from the Great Recession:

But things look very different when you break the total down into age groups (the first graph is not seasonally adjusted and the others are...). In the main 25-54 age group there has been little recovery:

while in the above 55's there was hardly a recession:

This graph is truly stunning I think. The under 25's seem to follow the pattern of total employment:

It's perhaps understandable that employment in this cheaper to hire group has rebounded strongly (but employment of 16-19 year old's has not), but what explains the almost lack of decline in employment in the over 55's? Usually, you'd expect older workers to be retired early in a recession.

Timur Kuran Calls Islamic Finance a Scam

I get a huge amount of spam from something called "Inayah Group". Most of it is in Arabic or has no content but I noticed this item while deleting the daily influx (I check quickly through my spam folder before deleting because I wouldn't want to delete legit e-mail from some grad student in a developing country etc.): Timur Kuran calls Islamic finance a scam in an interview in the Financial Times. I found this interesting because I had assumed that Islamic finance was based on equity investing rather than debt-based investing but here he says that interest is disguised as fees etc. Of course, Judaism also prohibits the charging of interest  to other Jews (as did Christianity in the past at least). This was got around using the heter iska (permit for business), which it seems is not that far from what Islamic finance does in practice. Another trick is to pay the interest to a third party rather than the lender.

ARC Releases 2014 Schedule

The ARC has released its schedule of important dates for 2014. In the past, funding rules and application dates have only been released close to the actual dates and so it has been hard to plan grant submissions. This was especially the case in 2011 when they announced that the closing date for Future Fellowship applications would be several months earlier than expected. There were relatively few applications that year as a result. That benefitted applicants as the success rate was higher. But then this round there were far more applicants than usual and the success rate will halve from 30% to 16%. So, this is a good move from the ARC to make the whole grant application process a little saner.

Global Energy Assessment

The Global Energy Assessment is now available for free online. This is a major international assessment of the prospects for energy transition launched in 2012. Chapter 1 "Energy Primer" is particularly useful, providing an introduction to energy systems. I am using it as a reading in my energy economics course that is starting this week (2nd year I am teaching it). It updates the 1996 energy primer that was included in the 2nd IPCC Assessment Report that I used as a teaching resource up till now.

Back from IPCC Meeting

I'm finally back in Australia after travelling for almost 4 weeks including a week spent at the IPCC meeting in Addis Ababa. In the meantime Australia changed prime minister and all bets seem to be off about what party will be in power in Australia after the next federal election which should take place later this year. I was also in Spain, Israel, and Kenya, which was especially fascinating. This is one of the best of the many pictures that Shuang took:


Lion, Maasai Mara National Reserve, Kenya

In Addis I confirmed that I am very sensitive to high altitudes (2400m) got altitude sickness and then when I had apparently covered really got ill and am still recovering. So, I only got to about half the meetings I was supposed to be at. This is the fourth and final meeting for regular authors on the Working Group III's contribution to the 5th Assessment Report. We were addressing the comments from government representatives as well as additional comments from academics, NGOs etc. There is also a continued effort to try to make the report an integrated and readable whole which is a real challenge with so many chapter teams working most of the time alone and so many authors in each chapter team. Using the time at the author meetings effectively is important and difficult. The IPCC is seeking comments from member governments on its future. Here are the responses of the UK and Dutch governments. Both suggest the obvious that the IPCC should use the web more effectively and perhaps update its products on more of a rolling basis. The UN structure that the IPCC is embedded in makes this difficult I think. Everything needs to be approved by member governments. The inflexibility of the table of contents of each chapter which was laid out at an IPCC plenary meeting has been quite frustrating for some of us authors but we have had to stick to what was laid down several years ago before the actual subject specialists entered the picture. It's hard to see the governments giving up these powers for a more flexible approach.