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

a r t i c l e i n f o 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. How important was the transition from traditional energy carriers, such as firewood and animal feed, to fossil fuels, initially coal, in fuelling the increase in the rate of economic growth known as the Industrial Revolution? Many energy and ecological economists (e. instead, that it was not necessary to expand the use of modern energy carriers such as coal and most growth economists (e.g. Galor, 2011) do not assign any special role to energy in economic growth. 1 Our key research questions are: What direct effects on growth did the transition to modern energy and the more efficient use of it have compared to the increased efficiency and expansion in the use of traditional energy carriers? Did these effects vary over the course of the transition? We address these questions using historical data from Sweden for the period 1850–1950. The pre-industrial energy system was plagued by two limitations that restricted population and per capita income growth (Kander et al., 2013). The first was that of low power, as there were no machines to convert heat into motion. This drawback was solved with steam engines and later by internal combustion engines. The second limitation of the pre-industrial energy system was that energy production demanded vast land areas for its production, was very labor intensive, and required extensive transportation from geographically dispersed energy sources (Wrigley, 1962). These limitations were overcome 1 It is debatable whether coal should be called a " modern " energy carrier given its long history of use in the …