Electricity in Economic Growth (1986) / Chapter Skim
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3. Electricity and Productivity Growth
3. Electricity and Productivity Growth
Pages 57-87
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From page 57... ...
The chapter touches on the shaded portions of the above reproduction of Figure 1-1. The concept of productivity figures prominently in analyzing economic growth.
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From page 58... ...
By adopting an econometric model of some generality, it has been possible to estimate empirically the quantitative dependence of sectoral productivity growth on technical change and the prices of the several inputs to production, including electrical and nonelectrical energy. For many industries, technical change is found to increase the shares, relative to those of other inputs to production, that given changes in electrical and nonelectrical energy input values contribute to change in output value.
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From page 59... ...
Productivity growth may result from substitution of a cheap input for an expensive one to achieve the same measure of output for a smaller total measure of input. Productivity growth may also be achieved through technical change that of itself increases output or decreases input.
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From page 60... ...
Such an examination was further suggested by the fact that from 1920 to 1955 the use of electricity had grown more than 10-fold, while the consumption of all other forms of energy only doubled. The two most important features of technical change concerning electricity during this time were, first, that the thermal efficiency of conversion of fuels into electricity increased by a factor of three and, second, that "the unusual characteristics of electricity had made *
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From page 61... ...
295) reaches the following general conclusion concerning technical change that may rely more on electr ic ity and less on labor: It seems obvious that there has been a very wide range of labor saving innovations throughout industry which have taken an electricity using form.
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From page 62... ...
First, the gradual decline in real energy prices through the early 1970s and the sharp increases in energy prices that followed the oil shocks of 1973 and 1979 suggest an important role is played by the substitution that may occur between
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From page 63... ...
Further understanding should result by analyzing the roles of the prices of both electricity and nonelectrical energy in determining productivity growth. THE RECENT DECLINE IN ECONOMIC GROWTH To assess the ef f ects of energy pr ices on economic g rowth, we beg in with a brief review of -several decades before the f irst oil crisis.
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From page 64... ...
S economic growth following the f irst oil crisis, we can begin by decomposing the growth of output for the entire economy into the contributions of capital input, labor input, and productivity growth.
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From page 66... ...
Analytically, if In G = vK In K + vL In L + In P where G is aggregate value added, K is capital input, L is labor input, P is productivity, and vK and vL are the value shares for capital and labor inputs respectively, then d In G = vK d In X + vL d In L + d In P
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From page 67... ...
S economy as a whole can be decomposed into four components -- a weighted sum of the rates of sectoral productivity g rowth and reallocations of value added, capital input, and labor input.
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From page 68... ...
that encompasses possibilities for substitution among inputs as well as patterns of technical change. Each price function gives the price of output for an industrial sector as a function of the prices of capital, labor, electricity, nonelectrical energy, and materials inputs and, in addition, time; in this formulation time represents the level of
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From page 69... ...
Parameters of the Model As in any econometric model, the relationships determining the value shares of capital, labor, electricity, nonelectrical energy, and materials inputs and the productivity growth rate involve unknown parameters (Appendix C, Equations 2) which must be estimated from data for the individual industries.
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From page 70... ...
That is, technical change would tend to increase the relative share of capital in the value of output. Similarly, we say that productivity growth is capital saving if the bias of productivity growth for capital input is negative.
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From page 71... ...
Analogous relationships hold for the biases of labor, electricity, nonelectrical energy, and materials inputs. Modeling the Role of Electricity in Productivity Growth In assessing the role of electricity in productivity growth, the critical parameter in our econometric model is the bias of productivity growth for electricity (Appendix C, CITY.
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From page 72... ...
Interindustry Transactions Accounts. Regarding electricity, nonelectrical energy, and materials inputs, we compiled data by sector on interindustry transactions among the 35 industrial sectors.
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From page 73... ...
Measures of labor input are obtained by aggregating over both sexes, eight age groups, five levels of educational attainment, two employment classes, and ten occupational categories within each industry. For each sector we compiled annual data on the value shares of capital, labor, electricity, nonelectrical energy, and materials inputs, for 1958 through 1979.
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From page 74... ...
Patterns of the Biases of Productivity Growth Table 3-2 classifies industries by their patterns of biases of productivity growth. The most frequent pattern of the biases corresponds to technical change that is capital using, labor using, electricity using, nonelectrical energy using, and materials saving.
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From page 75... ...
75 TABLE 3-2 Classif ication of Industries by Their -Patterns of Biases of Produc t ivity Growth Pattern of Biases Capital using Labor us ing Electr ic ity using Nonelectrical energy using Materials saving Capital using Labor saving Electricity using Nonelectrical energy using Materials using Capital using Labor using Electricity using Nonelectrical energy saving Materials saving Capital using Labor using Electricity saving Nonelectrical energy using Materials saving Capital using Labor saving Electricity using Nonelectrical energy saving Materials using Capital using Labor using Electricity saving Nonelectrical energy saving Mater ials saving Capital using Labor saving Electricity saving Nonelectrical energy using Mater ials saving Industries Tobacco, textiles, apparel, lumber and wood, printing and publishing, fabricated metal, motor vehicles, transportation Electrical machinery Metal mining, services Nonmetallic mining, miscellaneous manuf acturing, government enterprises Construction Coal mining, trade Agriculture, crude petroleum and natural gas, petroleum refining
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From page 76... ...
76 TABLE 3-2 Classif ication of Industries by Their Patterns of Biases of Productivity Growth (Concluded) Pattern of Biases Industr ies Capital saving Labor u s ing Electricity using Nonelectr ical energy using Materials using Capital saving Labor using Electricity using Nonelectrical energy using Mater ials saving Capital saving Labor using Electr ic ity saving Nonelectr ical energy using Mater ials us ing Capital saving Labor saving Electricity using Nonelectrical energy using Mater ials us ing Capital saving Labor using Electricity saving Nonelectrical energy using Materials saving Cap ital savi ng Labor using Electricity us ing Nonelectr ical energy saving Materials saving Capital saving Labor saving Electricity using Nonelectrical energy using Materials saving Capital saving Labor saving Electr ic ity saving Nonelectrical energy saving Materials using Food, paper Rubber; leather; instruments; gas utilities; finance, insurance, and real estate Chemicals Transportation equipment and ordnance, communications Stone, clay, and glass; machinery Primary metals Electric utilities Furniture
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From page 77... ...
If technical change is electricity using, the value share of electricity input in the value of output increases with technical change, while the productivity growth rate increases with a decrease in the price of electricity. We have found that technical change is electricity using for 23 of the 35 industries included in our study.
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From page 78... ...
Our findings are that technical change is nonelectrical energy using for 28 of the 35 industries included in our study and nonelectrical energy saving for 7 of these industries. A decline in the price of nonelectrical energy stimulates productivity growth in 28 of the 35 industries and dampens productivity growth in only 7.
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From page 79... ...
We find that technical change is nonelectrical energy using in agriculture and transportation, as suggested by Schurr and his associates. We also find that technical change is nonelectrical energy using for 19 of the 21 manufacturing industries included in our study.
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From page 80... ...
Pursuit of this inquiry should provide a deeper understanding of the relationship between energy use and productivity change. Given support for the hypothesis that technical change is electricity using and nonelectrical energy using, we can assess the potential for electrif ication and greater use of nonelectrical energy in reviving productivity growth at the level of individual industries in the United States.
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From page 81... ...
In the absence of such an explanation the growth of sectoral productivity is simply an unexplained residual between the growth of output and the contributions of growth of capital, labor, electricity, nonelectrical energy, and materials inputs. Finally, the significance of energy prices for sectoral productivity growth must be determined empirically.
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From page 82... ...
Of European countries France was not far behind Japan in experiencing increases in the real price of crude oil imports. Real energy prices to final users increased considerably less than did real oil prices in all major OECD countries.
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From page 83... ...
As unemployment rose, orthodox Keynesianism experienced a brief revival, only to be banished with the resulting "stagflation" -- combined economic stagnation and inflation. By 1978, after the f irst oil crisis, economists began to analyze the role of energy prices in economic change.
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From page 84... ...
1974a. The measurement of technical change biases with many factors of production.
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1978b. Energy prices and the U.S.
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1981. Relative prices and technical change.
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From page 87... ...
87 Schurr, S., and B
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