DX b

Using weighted regression results (from Table 9.7b) for oil coefficients of 0.10 and 0.15 as examples, Figures 9.9a and 9.9b show the calculated EP fraction (x) with respect to GDP fraction (Y) Figure 9.9b Changes of catch-up elasticity of EP with respect to GDP for two models using weighted regression results EP fraction (x) with respect to GDP fraction (Y) Figure 9.9b Changes of catch-up elasticity of EP with respect to GDP for two models using weighted regression results catch-up elasticity...

Catchup Countries Only

We have grouped the 131 countries according to several criteria and found that most countries in sub-groups 4 and 8 were catching up during the last few decades. However, not all countries in these groups were actually progressing. The regression results in Table 9.5 still reflect information from some countries that didn't progress vis- -vis the US. If one assumes that all the information from countries that didn't make progress economically in the period we analyse is 'noise' and that only...

Groupings And Nonlinear Regressions

Three criteria (defined by three dummy variables) are used for grouping. They are (1) geographical (high, mid or low latitude), (2) a high or low hydro-electricity fraction and (3) high or low oil exporter. Based on the possible combinations of the three factors, we can divide all the countries into 12 groups, as shown in Table 9.4. For all of the countries, hydro and oil export factors can and do change over time, mainly due to the building of new dams or the exhaustion of old oil or gas...

What The Standard Theories Do Not Explain

Much of the recent mainstream literature is concerned with the growing empirical evidence from growth-accounting studies, namely that factor accumulation - even with broad redefined factors, such as 'human capital' - matters less than TFP growth, which still remains essentially unexplained, except in qualitative terms. Models comparing growth over a large sample of countries are forced to make 'heroic' assumptions about the basic common growth rate, about the initial stocks of capital and...

Economic Development Theory

The theory of economic development is essentially growth theory as applied to the world as a whole, consisting of nearly 200 countries ranging in population from China to nearly unpopulated islands like Nauru or tiny city-states like Liechtenstein, Monaco, San Marino or Andorra. The range of political and economic circumstances is nearly as great. To explain the developmental behavior of such a diverse group is obviously a daunting task. However, the task has attracted, and continues to...

Background

The methodology described in the previous chapters is obviously too complicated to be applicable to developing countries with, in many cases, short histories and incomplete or unreliable historical data. Yet there is an increasingly urgent need to develop better forecasting and scenario-analysis tools that are simpler to implement and that do not depend from the outset on two critical but risky assumptions. The first assumption is that global economic growth is automatic and exponential, that...

NOTES

Some of the assumptions specific to the DICE model were challenged immediately, for instance the choice and sensitivity of the model to the assumed discount rate to which the model results are highly sensitive (Cline 1992), the uniform treatment of losses of tangible and intangible goods via the flexible production function, as opposed to a more rigid utility function (Tol 1994) and a lack of source and sink constraints on carbon and the assumed linearity of the carbon uptake processes and...

Empirical Results And Sensitivity

Sensitivity tests have been performed by varying critical parameters of both the bi-logistic function and the rate of decline of the primary exergy intensity of output. Model parameters were assumed to vary according to a Gaussian distribution. Estimates of suitable minimum, maximum, mean and standard deviation were determined for each model parameter in isolation, while keeping all others at their empirically observed values, used in the REXSH (historical) model (Table 8.2). The parameters of...

Risks Of Blind Extrapolation

Another more urgent problem is the approaching end of 'the age of oil' when global output peaks and begins to decline. The received wisdom on this subject is that there is still plenty of oil, at least when rising prices 'unlock' resources that are currently too costly to exploit. The situation has been obscured up to now by cheerful forecasts by industry figures and government agencies (such as the IEA, the USGS and the US Department of Energy), suggesting that increasing global demand, for...

Risks Of Blind Extrapolation Ii

The 2003-05 'recovery' of the US economy is clearly attributable to excessive consumption paid for by deficit spending. This spending was encouraged by low taxes and low interest rates, the latter financed in turn by foreign investment in US government bonds.2 That investment has been explicitly intended to keep US interest rates low and the US dollar overvalued in comparison with the Chinese and other Asian currencies. An overvalued US dollar is very good for Asian exporters and US consumers,...

Risks Of Blind Extrapolation I

The macroeconomic changes between 1998 and 2005 alone are far from trivial. In the year 2000 the US Federal budget had a surplus of 1 percent of GDP. By 2006 the surplus had become a deficit close to 6 percent of GDP, a figure more usually associated with Latin America. From 2001 to 2003 President Bush lowered taxes for the richest Americans quite dramatically, sharply increasing the income disparity between rich and poor. To complicate the story, there are indications that the large investment...

The Role Of Extrapolation In Integrated Assessment Models

Integrated assessment (IA) models are at the heart of current efforts to assess policies and prospects for the future. The relationships between technological progress, economic activity and global environment are the focus of most of this area of research. Each model is designed to address different policy questions, for example, to quantify the potential costs of climate stabilization policies such as the Kyoto Protocol (Manne and Wene 1994 Weyant 1999), or to assess our ability to meet...

Extrapolation

Extrapolation is the word which describes the continuation of a trend, usually quantitative. As applied to time series, the idea is that, barring unexpected events, the future will be like the past. If the sun has come up every morning for 10 000 years, it seems reasonable to assume it will come up again tomorrow. If the moon has waxed for 14 days and waned for 14 days for 10 000 years, it seems reasonable to assume that the pattern will be repeated next month. If spring, summer, fall and...

Resource Scarcity As A Driver Of Innovation

Until the mid-19th century land was virtually the only economic 'resource', with a few minor exceptions, mainly metals. The idea of resource (land) as a factor of production originated with the French physiocrats, especially Quesnay, and of course the Scotsman, Adam Smith (Smith 1976 1776 Kuczynski 1971). Quesnay and Smith were disputing Locke's assertion that land only generates welfare through the application of labor and tools (Locke 1998 1689 ). He regarded tools as a 'store' of labor....

Extrapolating Technological Progress

The standard neoclassical growth model assumes growth in equilibrium, driven by an external force called 'technological progress' or total factor productivity TFP . Goods and services are abstractions. Demand for energy exergy or other resources is a consequence, not a cause of economic growth. Silly as it sounds when stated explicitly, resources in such models are treated as if they were created by some combination of capital and labor. This is why growth, in this idealized model, does not...

Growth In The Neoclassical Paradigm The Standard Model

Solow Growth Model

Most economists are still using versions of a theory of growth developed for a single-sector model half a century ago by Robert Solow, who was awarded a Nobel Prize for his accomplishment Solow 1956, 1957 a very similar model was set forth at about the same time by Trevor Swan Swan 1956 . The theory was developed further by Meade, another Nobel laureate Meade 1961 . The key feature of the Solow-Swan model was to Figure 5.2 Cost of power per hour as multiple of hourly wage Figure 5.2 Cost of...

Estimating The Production Function

For a theory of growth, if one does not want to wait 20 or 30 years for confirmation, the best hope is to explain past economic growth reasonably well for a very long period, such as a century. This is what we attempt here in this chapter. The starting point is to specify the form of a production function that fits historical data with as few independent parameters as possible, subject to certain statistical requirements. This was the aim of Chapter 6. The next step looks simple, at first...

Technological Trajectories

The gradual evolution of a constrained upward-tending knowledge search and acquisition process over decades has been described as a technological trajectory Perez-Perez 1983 Freeman 1989 . We would modify the definition slightly. For us, a technological trajectory is a sequence of developments starting from a distinct functional configuration utilizing a basic principle. For instance, the 'atmospheric' reciprocating steam engine beginning with Newcomen can be regarded as the starting point of a...

The Solowswan Model Of Economic Growth

Until the 1950s growth theory remained primitive and qualitative because it lacked any empirical base. Some will argue that it is still primitive. However, thanks to the development of the system of national accounts SNA in the 1930s and 1940s, it became possible for the first time to construct historical GDP figures for the US and some other countries for a number of prior decades. Economists had previously assumed that economic growth was determined by the accumulation of capital stock per...

Prime Movers And Heat

For purposes of empirical estimation of other types of work, it is helpful to distinguish between two categories of fuel use. The first category is fuel used to do mechanical work, via so-called 'prime movers'. These include all kinds of internal and external combustion engines, from steam turbines to jet engines, as well as nuclear steam power plants. Electric motors are not prime movers because a prime mover - such as a steam turbine - is needed to generate the electricity in the first place....

Exergy As A Measure Of Material Quantity And Quality

Almost everybody uses mass as the measure of quantity applicable to material substances. On the surface of the earth, the mass of an object is proportional to its weight, which can be measured quite easily. To be precise, weight is equal to mass times the force of gravity.9 However, mass is not particularly interesting in resource accounting, except for comparisons of changing requirements for specific materials or groups over time as illustrated in Section 3.2 , or similar comparisons between...

Exergy And Useful Work

Japan Gdp Growth 1900

The calculation of E and U for the US - or any country - and the calculation of the efficiency factor f are major computational undertakings in themselves, since much of the underlying data are not collected or published, as such, in official government statistics. The time series for useful work U must be constructed from other time series, for example, on energy consumption by category and information about the uses of energy and the history of technology. However, the results for exergy GDP...

Exergytowork Efficiency Improvements Since

Gdp Growth 1800 1900

In a very important sense the industrial revolution was powered by steam. The fuel required to perform a unit of mechanical work for example, a Figure 4.9 Performance of steam engines fuel consumption and thermal efficiency Figure 4.9 Performance of steam engines fuel consumption and thermal efficiency horsepower hour or kilowatt hour from steam has decreased dramatically since 1800, and even since 1900, although the decline has been very slow since the 1960s. Steam engines have become more...

Further Implications Of The Second Law Of Thermodynamics

Many economists, and most physical scientists, assume that the relationship between economics and the second entropy law of thermodynamics concerns resource depletion and scarcity. In this belief they are, in a sense, disciples of the late Nicholas Georgescu-Roegen, who famously said 'The entropy law is the taproot of economic scarcity' and many other words to that effect Georgescu-Roegen 1971, 1977 . As noted at the beginning of this chapter, the economy is a system that extracts low entropy...

The Rexsf Model Of The Us Economy

Economy 1900 2000 Graph

Since US economic growth for the past century, at least up to 2000, can be explained with considerable accuracy by three factors, K, L, U, it is not unreasonable to expect that future growth for some time to come - several decades, at least, will be explained quite well by simulated extrapolations of these variables, plus a growing contribution from information and communications technology ICT . A powerful qualitative argument for this approach is that, no matter which direction the causality...

Scatter Diagrams And Linear Regressions

The first step is to plot the energy proxy variable EP against the GDP fraction. Figure 9.1 shows the plot for all 131 countries for which we have data. The time frame covers the period from 1960 to 2001 for OECD countries and from 1971 to 2001 for other countries. On the vertical axis is the GDP fraction, and on the horizontal axis is the EP fraction proxy as defined above. The US by definition is always at the point 1, 1 . There is an obvious trend, on average, but with a significant number...

Electrification And Urbanization

France Urbanization

It is tempting to test two variables that are highly correlated with technology improvement and economic growth, namely electrification Ele and urbanization Urb . Figure C.1 plots the relationship between GDP fraction and electrification, expressed as electricity consumption per capita, as a fraction of the US level. The data used in this figure are from 1997 to 2001 for 130 countries. We can see that for relatively low income countries GDP below 40 percent the relationship is almost linear and...

Figures

3.1 The materials life cycle 66 3.2 US economic system as a whole from a mass flow perspective 1993 in MMT 68 3.3a Total major inputs to GDP fuels, metals, construction, chemicals and biomass in terms of mass USA, 1900-2004 73 3.3b Total major inputs to GDP fuels, metals, construction, chemicals and biomass in terms of exergy USA, 1900-2004 73 3.4a Major inputs of fossil fuels coal, petroleum, natural gas and NGL mass capita and exergy capita USA, 1900-2004 74 3.4b Major inputs of chemicals to...

Numerical Results

Gdp Usa 1900

The ordinary least squares OLS fit can be done in two ways either by using the log-variables and the ratios or, and alternatively, by using the year-to-year differences. As already noted, a simple two or three parameter production function, whether of the Cobb-Douglas or LINEX type, cannot be expected to explain short-run, year-to-year differences accurately. The fact that such a function has any short-run explanatory power at all is fairly remarkable. It is tempting, therefore, to do a fit...

Thermodynamic Critique Of Economics

The first major economist to criticize neoclassical economics on thermo-dynamic grounds was Nicholas Georgescu-Roegen hereafter G-R . He is best known for his 1971 book, The Entropy Law and the Economic Process Georgescu-Roegen 1971 . To summarize in the fewest possible words, his key point was that the economy is not a perpetual motion machine. In contrast to the standard neoclassical view, the economic system is a materials-processing system that converts high quality low entropy raw...

Further Implications Of The First Law Of Thermodynamics

As mentioned earlier Chapter 3 , the first law of thermodynamics conservation of mass implies that mass outputs from any process equal mass inputs. However, useful outputs are almost invariably a fraction of total inputs, sometimes a small fraction as in the case of refining low grade ores . In some cases, the output mass is entirely wasted, as with combustion processes. Thus wastes are an unavoidable by-product of physical production. The law of mass conservation, on the other hand, is far...

Physical Constraints The Second Law Of Thermodynamics

The second law of thermodynamics is commonly known as the 'entropy law'. It states, in effect, that spontaneous processes in isolated systems always tend toward long-run thermodynamic equilibrium. In simple terms, it means that no energy transformation process that goes spontaneously in one direction can be reversed without some expenditure of available energy, or exergy. This applies, incidentally, to materials-recycling processes, a point emphasized though somewhat misunderstood by the late...

Trends In Exergymass And Exergy Gdp For The Us

Economic Growth Usa 1920 1930

The next group of charts, Figures 3.5a-f, shows materials consumption in the US during the 20th century as measured in terms of mass and exergy in relation to economic activity GDP . Though the exergy embodied in any given material is proportional to its mass, the mass exergy ratio is not necessarily constant for groups of materials for example, construction materials or fuels due to shifts in the mix or composition of the group. Thus, Figures 3.4a and 3.5a for fossil fuels exhibit not-quite...

Exergy Supply Trends For The Us And Japan

Gdp Growth 1990 2000

In the remainder of this book we compare the US and Japan in considerable detail. The choice of Japan for this purpose is partly due to the availability of excellent historical data for the full hundred-year period. However, Japan also offers a fascinating contrast with the US. While the two countries are at comparable levels of development today, the history of development has been very different. Moreover, the two countries differ radically in terms of raw material base. The patterns of...

But Doubts Remain

Georgescu Roegen

As a point of departure for rigorous, if simplistic, mathematical analysis of various subsidiary topics, the neoclassical theory of growth sketched -much too briefly - above has undoubted virtues. However, the underlying assumption of optimal growth in equilibrium is very troubling. In this context, it is important to note a number of difficulties, as follows 1 the real multi-sector, multi-product economy is never actually in equilibrium and 2 if it were, there would be no opportunity or...

Mass Flows And The Life Cycle

Exports Usa 1900 1940

The materials 'life cycle' can be characterized schematically as shown in Figure 3.1. It is obvious that the stages of the life cycle correspond to familiar economic activities, already defined as 'sectors'. At the beginning are the extractive industries, consisting of agriculture, fishing, forestry, mining, quarrying and drilling for oil and gas. Substantial quantities of waste are generated at this stage, but mostly these are left behind at or near the place where the extraction occurs,...