Economic growth and energy use during different stages of development: an empirical analysis

This paper empirically investigates the effect of energy use on economic growth throughout different stages of development. Along with direct effects, energy is allowed to influence income growth indirectly by capital accumulation through input substitution. We find that energy use affects economic growth primarily through the capital channel and that this result varies substantially with regard to the country's income level. For middle-income countries including the quintet of large emerging economies – Brazil, Russia, India, China and South Africa – an increase in energy use drives capital accumulation, which favors economic growth. On the contrary, for high-income countries, a higher energy input tends to withdraw productive resources from capital accumulation, harming economic growth. Considering these differences, policy measures aiming at restricting energy consumption should be evaluated against the background of a region's stage of economic development.