International trade and the energy intensity in Europe, 1870-1935

"Previous research suggests there is an inverted U-shape curve for energy intensity in the long-run for Western Europe with a peak in the early 20th century. The upswing of the curve in the phase of early industrialization in the second half of the 19th century was due to the performance of two large coal-based economies: Germany and Britain. Other European countries either had a flat or declining energy intensity curve in that period. This paper tests the hypothesis that the increase of German and British energy intensity was an effect from the concentration of heavy industrial production to these countries, although the consumption of a significant share of these goods took place elsewhere. Perhaps Germany and Britain, as the ‘workshops of the world’, were doing the dirty work for goods consumed by others, as is argued for China today. We use an entirely new database that we have constructed (TEG: Trade, Energy, Growth) to test if these countries exported more energy-demanding goods than they imported, thus providing other countries with means to industrialize and to consume cheap energy demanding goods. The analysis confirms our hypothesis. The pronounced German curve without trade adjustments entirely disappears when we account for energy embodied in the traded commodities. For Britain the EKC curve changes into a fluctuating pattern during the second half of the 19th century, before falling from WWI onwards. On balance for the total of our sample of seven European countries the upward slope of the curve also disappears when trade is taken into account. Still, for Europe as a whole it is not likely that the curve disappears, but rather becomes weaker, after trade adjustment."