Stochastic Trend

I'm adding some more intuition to our paper on the Industrial Revolution. I have a sketch of the math but still need to work out the details. Here is the argument:

"In this section, we show that both Malthusian Sluggishness and Modern Economic Growth are characterized by a strong equilibrium bias of technical change (Acemoglu, 2009). This means that in both regimes the long-run demand curve for the resource is upward sloping – higher relative prices are associated with higher demand. Under Malthusian Sluggishness the price of wood is rising relative to coal and technical change is relatively wood-augmenting. At the same time, wood use is rising relative to coal use. Because when the elasticity of substitution is greater than one the market size effect dominates the price effect, technical change becomes increasingly wood-augmenting. As a result, the economy increasingly diverges from the region where an industrial revolution is possible or inevitable. Modern Economic Growth is the mirror image. The price of coal rises relative to the price of wood, but coal use increases relative to wood use and technical change is increasingly coal-augmenting."

I'll be giving a presentation in the "distinguished speakers series" at ICAT, Autonomous University of Barcelona on 5th December. I just wrote the abstract:

The Role of Energy in the Industrial Revolution and Modern Economic Growth

Abstract: Ecological and mainstream economists have debated the importance of energy in economic growth. Ecological economists usually argue that energy plays a central role in growth, while mainstream economists usually downplay the importance of energy. Using the (mainstream) theory of directed technological change, I show how increasing scarcity of biomass could induce coal-using innovation in Britain, resulting in the acceleration in the rate of economic growth known as the Industrial Revolution. Paradoxically, industrialization would be delayed in countries with more abundant biomass resources. However, as energy has become increasingly abundant, the growth effect of additional energy use has declined. Furthermore, both directed technological change theory and empirical evidence show that innovation has increasingly focused on improving the productivity of labor rather than that of energy. This explains the focus of mainstream economic growth models on labor productivity enhancing innovation as the driver of economic growth.

The paper will draw on my 2012 paper with Astrid Kander – it shares the same title after all – my recent working paper with Jack Pezzey and Yingying Lu, and maybe my ongoing work with Akshay Shanker on understanding trends in energy intensity in the 20th and 21st Centuries. The talk is for an interdisciplinary audience, so that will be challenging, but I think I can do it :)

Following up on my post on our paper about the Industrial Revolution , I thought some more context would be useful. The traditional view of the Industrial Revolution was that the availability of resources of coal, iron ore, and earlier water power in Britain were crucial factors that lead to the Industrial Revolution occurring in Britain and not elsewhere. Of course, these weren't sufficient - industrialization didn't happen in China - and so institutions also seemed to be important. But in recent years economists have emphasized the role of institutions and downplayed the role of resources more and more. This is what I call the revisionist view. Tony Wrigley and Robert Allen are key exponents of a counter-revisionist view, reemphasizing the role of resources, though not ignoring the importance of institutions. Our paper is a mathematical and quantitative exploration of the counter-revisionist view.

Economists and historians are divided on the importance of coal in fueling the increase in the rate of economic growth in the Industrial Revolution. Many researchers (e.g. Wilkinson, 1973; Wrigley, 1988, 2010; Pomeranz, 2000; Krausmann et al., 2008; Allen, 2009, 2012; Barbier, 2011; Gutberlet, 2012; Kander et al., 2013; Fernihough and O’Rourke, 2014, Gars and Olovsson, 2015) argue that innovations in the use, and growth in the quantity consumed, of coal played a crucial role in driving the Industrial Revolution. By contrast, some economic historians (e.g. Clark and Jacks, 2007; Kunnas and Myllyntaus 2009) and economists (e.g. Madsen et al., 2010) either argue that it was not necessary to expand the use of modern energy carriers such as coal, or do not give coal a central role (e.g. Clark, 2014).

Wrigley (1988, 2010) stresses that the shift from an economy that relied on land resources to one based on fossil fuels is the essence of the Industrial Revolution and could explain the differential development of the Dutch and British economies. Both countries had the necessary institutions for the Industrial Revolution to occur but capital accumulation in the Netherlands faced a renewable energy resource constraint, while in Britain domestic coal mines in combination with steam engines, at first to pump water out of the mines and later for many other uses, provided a way out from the constraint. Early in the Industrial Revolution, the transport of coal had to be carried out using traditional energy carriers, for instance by horse carriages, and was very costly, but the adoption of coal-using steam engines for transport, reduced the costs of trade and the Industrial Revolution spread to other regions and countries.

Pomeranz (2001) makes a similar argument, but addresses the issue of the large historical divergence in economic growth rates between England and the Western World on the one hand and China and the rest of Asia on the other. He suggests that shallow coal-mines, close to urban centers together with the exploitation of land resources overseas were very important in the rise of England. “Ghost land”, used for the production of cotton for the British textile industry provided England with natural resources, and eased the constraints of the fixed supply of land. In this way, England could break the constraints of the organic economy (based on land production) and enter into modern economic growth.

Allen (2009) places energy innovation center-stage in his explanation of why the industrial revolution occurred in Britain. Like Wrigley and Pomeranz, he compares Britain to other advanced European economies of the time (the Netherlands and Belgium) and the advanced economy in the East: China. England stands out as an exception in two ways: coal was relatively cheap there and labor costs were higher than elsewhere. Therefore, it was profitable to substitute coal-fuelled machines for labor in Britain, even when these machines were inefficient and consumed large amounts of coal. In no other place on Earth did this make sense. Many technological innovations were required in order to use coal effectively in new applications ranging from domestic heating and cooking to iron smelting. These induced innovations sparked the Industrial Revolution. Continued innovation that improved energy efficiency and reductions in the cost of transporting coal eventually made coal-using technologies profitable in other countries too.

By contrast, Clark and Jacks (2007) argue that an industrial revolution could still have happened in a coal-less Britain with only "modest costs to the productivity growth of the economy" (68), because the value of coal was only a modest share of British GDP, and they argue that Britain's energy supply could have been greatly expanded, albeit at about twice the cost of coal, by importing wood from the Baltic. Madsen et al. (2010) find that, controlling for a number of innovation related variables, changes in coal production did not have a significant effect on labor productivity growth in Britain between 1700 and 1915. But as innovation was required to expand the use of coal this result could make sense even if the expansion of coal was essential for growth to proceed. Both Clark and Jacks (2007) and Madsen et al. (2010) do not allow for the dynamic effects of resource scarcity on the rate of innovation. Tepper and Borowiecki (2015) also find a relatively small direct role for coal but concede that: “coal contributed to structural change in the British economy” (231), which they find was the most important factor in raising the rate of economic growth. On the other hand, Fernihough and O’Rourke (2014) and Gutberlet (2012) use geographical analysis to show the importance of access to local coal in driving industrialization and urban population growth, though Kelly et al. (2015) provide contradictory evidence on this point. Finally, Kander and Stern (2014) econometrically estimate a model of the transition from biomass energy (mainly wood) to fossil fuel (mainly coal) in Sweden, which shows the importance of this transition in economic growth there.

Our new paper shows that the switch to coal in response to resource scarcity is a plausible explanation of how an increase in the rate of economic growth and a dramatic restructuring of the economy could be triggered in a country with a suitable environment for innovation and capital accumulation. We argue that in the absence of resource scarcity this shift might not have happened or have been much delayed.

References

Allen, Robert C. 2012. "The Shift to Coal and Implications for the Next Energy Transition." Energy Policy 50: 17-23.

Barbier, Edward .B. 2011. Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Exploitation. Cambridge University Press: Cambridge and New York.

Clark, Gregory. 2014. “The Industrial Revolution.” In Handbook of Economic Growth, Vol 2A, edited by Philippe Aghion and Steven Durlauf, 217-62. Amsterdam: North Holland.

Clark, Gregory, and David Jacks. 2007. “Coal and the Industrial Revolution 1700-1869.” European Review of Economic History 11: 39–72.

Fernihough, Alan, and Kevin Hjortshøj O’Rourke. 2014. “Coal and the European Industrial Revolution.” NBER Working Paper 19802.

Kander, Astrid, Paolo Malanima, and Paul Warde. 2014. Power to the People – Energy and Economic Transformation of Europe over Four Centuries. Princeton, NJ: Princeton University Press.

Kander, Astrid, and David I. Stern. 2014. “Economic Growth and the Transition from Traditional to Modern Energy in Sweden.” Energy Economics 46: 56-65.

Kelly, Morgan, Joel Mokyr, and Cormac Ó Gráda. 2015. “Roots of the industrial revolution.” UCD Centre for Economic Research Working Paper WP2015/24.

Krausmann, Fridolin, Heinz Schandl, and Rolf Peter Sieferle. 2008. “Socio-Ecological Regime Transitions in Austria and the United Kingdom.” Ecological Economics 65: 187-201.

Madsen, Jakob B., James B. Ang, and Rajabrata Banerjee. 2010. “Four Centuries of British Economic Growth: the Roles of Technology and Population.” Journal of Economic Growth 15(4): 263-90.

O’Rourke, Kevin Hjortshøj, Ahmed S. Rahman and Alan M. Taylor. 2013. “Luddites, the Industrial Revolution, and the Demographic Transition.” Journal of Economic Growth 18: 373-409.

Pomeranz, Kenneth L. 2001. The Great Divergence: China, Europe and the Making of the Modern World Economy. Princeton, NJ: Princeton University Press.

Tepper, Alexander, and Karol J. Borowiecki. 2015. “Accounting for Breakout in Britain: The Industrial Revolution through a Malthusian Lens.” Journal of Macroeconomics 44: 219-33.

Wilkinson, Richard G. 1973. Poverty and Progress: An Ecological Model of Economic Development. London: Methuen.

Wrigley, E. Anthony. 1988. Continuity, Chance, and Change: The Character of the Industrial Revolution in England. Cambridge: Cambridge University Press.

Wrigley, E. Anthony. 2010. Energy and the English Industrial Revolution. Cambridge: Cambridge University Press.

We have finally posted our long-promised paper on the Industrial Revolution as a CAMA Working Paper. This is the final paper from our ARC-funded DP12 project: "Energy Transitions: Past, Present and Future". The paper is coauthored with Jack Pezzey and Yingying Lu. We wrote our ARC proposal in 2011, but we "only" started work on the current model in late 2014 after I read Acemoglu's paper "Directed Technical Change" in detail on a flight back to Australia and figured out how to apply it to our case. We have presented the paper many times in seminars and conferences, though I will be presenting it again at the University of Sydney on April 6th.

The paper develops a directed technical change model of economic growth where there are two sectors of the economy each using a specific type of energy as well as machines and labor. The Malthus sector uses wood, which is only available in a fixed quantity per year, and the Solow sector uses coal, which is available at a fixed price. These assumptions are supported by the data. We don't think it is necessary to model coal as an explicitly non-renewable resource. As shallow deposits were worked out, technological change, including the development of the steam engine, allowed the exploitation of deeper deposits at more or less constant cost.

The names of the sectors come from the paper by Hansen and Prescott (2002): Malthus to Solow.  That paper assumes that technological change is exogenous and happens at a faster fixed rate in the Solow sector (which only uses labor and capital) than in the Malthus sector (which also uses a fixed quantity of land). The Solow sector is initially backward but because technical change is more rapid in that sector and it is not held back by fixed land, eventually it comes to dominate the economy in an industrial revolution.

Our paper updates this model for the 21st Century. In our model, technological change is endogenous, as is the speed with which it happens in each sector - the direction of technical change. We don't assume, a priori, that it is easier to find new ideas in the coal-using sector. In fact, we don't assume any differences between the sectors apart from the supply conditions of the two energy sources, which we explicitly model.

In most cases, an industrial revolution eventually happens. The most interesting case is when the elasticity of substitution between the outputs of the Malthus and Solow sector's is sufficiently high - based on our best guesses of the model parameters in Britain, greater than 2.9 - then it is possible if wood is relatively abundant for an economy to remain trapped forever in what we call Malthusian Sluggishness where growth is very low.* Population growth can push an economy out of this zone by raising the price of wood relative to coal and send the economy on a path to an industrial revolution.

These two phase diagrams show the two alternative paths an economy can take in the absence of population growth, depending on its initial endowment of knowledge and resources:

N is the ratio of knowledge in the Malthus sector (actually varieties of machines) to knowledge in the Solow sector. y is the ratio of output in the two sectors and e is the ratio of the price of wood to the price of coal. In the first diagram we see that an economy on an industrial revolution path first has rising wood prices relative to coal and also, initially, technical change is more rapid in the Malthus sector than in the Solow sector and so N rises too. In the long-run both these trends reverse and under Modern Economic Growth technical change is more rapid in the Solow sector and the relative price of wood falls. At the same time, we see in the second diagram that eventually the output of the Solow sector grows more rapidly than that of the Malthus sector so that y falls. The rate of economic growth also accelerates.

But an economy which starts out with a low relative wood price, e, or low relative knowledge in the Solow sector, N, can remain trapped with rising wood prices AND increasing specialization in the Malthus sector - rising y and N. Though there is coal lying underground, it is never exploited, even though switching to coal use would unleash more rapid economic growth in the long run. The myopic, but realistic, focus on near term profits from innovation discourages the required innovation in the Solow sector.

The core of the paper is a set of formal propositions laying out the logic of these findings but we also carry out simulations of the model calibrated to the British case over the period 1560-1900. Counterfactual simulations with more abundant wood, more expensive coal, more substitutability, less initial knowledge about using coal, or less population growth all delay the coming of the Industrial Revolution.

* We assume either that population is constant or treat its growth as exogenous.

I've been doing these annual reviews since 2011. They're mainly an exercise for me to see what I accomplished and what I didn't in the previous year. The big change this year mentioned at the end of last year's review is that we had a baby in February. I ended up taking six weeks leave around the birth. Since then, I've been trying to adjust my work-life balance :) I'm trying to get more efficient at doing things, dropping things that aren't really necessary to do, trying to schedule work time more. None of these things are that easy, at least for me. It's mainly anything that isn't work, baby, or housework that gets squeezed out. I'm still director of the International and Development Economics program at Crawford. I will now be director for the next six months at least, after which I hope to pass this role on to someone new, but they haven't been identified as yet. During my time as director, we've made less progress on various initiatives than I would have liked due to internal ANU politics.

The highlights for the year were being elected a fellow of the Academy of the Social Sciences in Australia. I attended the annual ASSA symposium and other events in November where new fellows are welcomed. Also, our consortium was awarded a five year contract by the UK DFID to research energy for economic growth in Sub-Saharan Africa and South Asia. In particular, we are looking at how electrification can best enhance development. Also in November I attended the "Research and Matchmaking Conference" in Washington DC, where we presented the results of our first year of research and interacted with policymakers from developing countries and others. In the first year, the main activity has been writing 18 state of knowledge papers. I've have writing a paper with Stephan Bruns and Paul Burke on macroeconomic evidence for the effects of electrification on development.


Work got started on our ARC DP16 project. Zsuzsanna Csereklyei joined us at ANU as a research fellow working on the project. She is focusing on the technology diffusion theme. 

I published a record number of journal articles - in total, eight! Somehow a lot of things just happened to get published this year. It's easiest just to list them with links to the blogposts that discuss them:

Ma C. and D. I. Stern (2016) Long-run estimates of interfuel and interfactor elasticities, Resource and Energy Economics 46, 114-130. Working Paper Version | Blogpost

Bruns S. B. and D. I. Stern (2016) Research assessment using early citation information, Scientometrics 108, 917-935. Working Paper Version | Blogpost

Stern D. I. and D. Zha (2016) Economic growth and particulate pollution concentrations in China, Environmental Economics and Policy Studies 18, 327-338. Working Paper Version | Blogpost | Erratum

Lu Y. and D. I. Stern (2016) Substitutability and the cost of climate mitigation policy, Environmental and Resource Economics 64, 81-107. Working Paper Version | Blogpost

Sanchez L. F. and D. I. Stern (2016) Drivers of industrial and non-industrial greenhouse gas emissions, Ecological Economics 124, 17-24. Working Paper Version | Blogpost 1 | Blogpost 2

Costanza R., R. B. Howarth, I. Kubiszewski, S. Liu, C. Ma, G. Plumecocq, and D. I. Stern (2016) Influential publications in ecological economics revisited, Ecological Economics. Working Paper Version | Blogpost

Csereklyei Z., M. d. M. Rubio Varas, and D. I. Stern (2016) Energy and economic growth: The stylized facts, Energy Journal 37(2), 223-255. Working Paper Version | Blogpost

Halkos G. E., D. I. Stern, and N. G. Tzeremes (2016) Population, economic growth and regional environmental inefficiency: Evidence from U.S. states, Journal of Cleaner Production 112(5), 4288-4295. Blogpost

I also updated my article on economic growth and energy in the Elsevier Online Reference Materials. Citations shot past 11,000 on Google Scholar (h-index: 42) and will total more than 12,000 when all citations for this year are eventually collected by Google.

I have two papers currently under review (also two book chapters, see below). First, there is a survey paper on the environmental Kuznets curve, which I have now resubmitted to a special issue of the Journal of Bioeconomics that emerged from the workshop at Griffith University I attended last year. So, this should be published soon. Then there is our original paper on the growth rates approach to modeling the emissions-income relationship. I have resubmitted our paper on global particulate concentrations. We have a revise and resubmit for the paper on meta-Granger causality testing.

Some other projects are nearing completion. One is a new climate econometrics paper. Stephan Bruns presented our preliminary results at the Climate Econometrics Conference in Aarhus in October. I posted some excerpts from our literature review on this blog. We are also still wrapping up work on our paper on the British Industrial Revolution. Last year, I forecast we would soon have a working paper out on it. I'll have to make that forecast again! We also want to turn our state of knowledge paper for the EEG project into a publication. Of course, there is a lot more work at much earlier stages. For example, this week so far I've been working on a paper with Akshay Shanker on explaining why energy intensity has declined in countries such as the US over time. It's not as obvious as you might think! We've been working on this now and then for a couple of years, but now it looks much more like we will really complete the paper. I'm going to see if I can complete a draft in the next day or so of a paper following up from this blogpost. And, of course, there are the DP16 projects on energy efficiency and there are some long-term projects that I really want to return to and finish, but other things keep getting in the way.

My first PhD student here at Crawford, Alrick Campbell, submitted his PhD thesis in early December. It consists of four papers on energy issues in small island developing states (SIDS). The first of these looks at the effect of oil price shocks on economic growth in SIDS using a global vector autoregression model. He finds that oil price shocks have only small negative effects on most oil importing SIDS and positive effects, as expected, on oil exporting countries such as Bahrain or Trinidad and Tobago. These results are interesting as many of the former economies are fairly dependent on imported oil and would be expected to be susceptible to oil price shocks. The remaining papers estimate elasticities of demand for electricity for various sectors in Jamaica, look at the choice between revenue and price caps for the regulation of electric utilities, and benchmark the efficiency of SIDS electric utilities using a data envelopment analysis. My other student (I'm also on a couple of other PhD panels), Panittra Ninpanit, presented her thesis proposal seminar.


Because of the baby, I didn't travel as much this year as I have in previous years. I gave online keynote presentations at conferences in Paris and at Sussex University on energy and growth.  In September and October I visited Deakin U., Curtin U., UWA, and Swinburne U. to give seminars. Then in late October and early November I visited the US for a week to attend the EEG conference in Washington DC, mentioned above.

I only taught one course this year - Energy Economics. I got a reduction in teaching as compensation for being program director instead of receiving extra pay. As a result, I didn't teach in the first semester, which was when the baby arrived.

Total number of blogposts this year was slightly less last year, averaging three per month. As my Twitter followers increase in number - now over  500 - I find that readership of my blog is becoming very spiky with a hundreds of readers visiting after I make a post and tweet it and then falling back to a low background level of 20-30 visits per day. The most popular post this year was Corrections to the Global Temperature Record with about 650 reads.

Looking forward to 2017, it is easy to predict a few things that will happen that are already organized:

1. Alessio Moneta and Stephan Bruns will visit Canberra in late February/early March to work on the rebound effect component of the ARC DP16 project.
2. I will visit Brisbane for the AARES annual conference and Singapore for the IAEE international conference. I just submitted an abstract for the latter, but it's pretty likely I'll go, especially as there are now direct flights from Canberra to Singapore.
3. I will be the convener for Masters Research Essay in the first semester and again teach Energy Economics in the second semester.
4. I will publish two book chapters on the environmental Kuznets curve in the following collections: Oxford Research Encyclopedia of Environmental Economics and The Companion to Environmental Studies (Routledge).

In the realm of the less predictable, for the first time in five years I actually applied for a job. I had a Skype interview for it a two weeks ago. I wasn't really looking for a job but just saw an attractive advertisement that a former Crawford PhD student sent me. No idea if anything more will come of that...

It's the first official day of winter today here in Australia, though it has felt wintry here in Canberra for about a week already. The 1st Semester finished last Friday and as I didn't teach I don't have any exams or papers to grade and the flow of admin stuff and meetings seems to have sharply declined. So, most of this week I can just dedicate to catching up and getting on with my research. It almost feels like I am on vacation :) Looking at my diary, the pace will begin to pick up again from next week.

I'm working on two main things this week. One is the Energy for Economic Growth Project that has now been funded by the UK Department for International Development. I mentioned our brainstorming meeting last July in Oxford in my 2015 Annual Report. I am the theme leader for Theme 1 in the first year of the project. In the middle of this month we have a virtual workshop for the theme to discuss the outlines for our proposed papers. I am coauthoring a survey paper with Paul Burke and Stephan Bruns on the macro-economic evidence as part of Theme 1. There are two other papers in the theme: one by Catherine Wolfram and Ted Miguel on the micro-economic evidence and one by Neil McCulloch on the binding constraints approach to the problem.

The other is my paper with Jack Pezzey on the Industrial Revolution, which we have presented at various conferences and seminars over the last couple of years. I'm ploughing through the math and tidying the presentation up. It's slow going but I think I can see the light at the end of the tunnel! This paper was supposed to be a key element in the ARC Discovery Projects grant that started in 2012.

In the meantime, work has started on our 2016 Discovery Projects grant. Zsuzsanna Csereklyei has now started work at Crawford as a research fellow funded by the grant. She has been scoping the potential sources of data for tracing the diffusion of energy efficient innovations and processing the first potential data source that we have identified. It is hard to find good data sources that are usable for our purpose.

There is a lot of change in the air at ANU as we have a new vice-chancellor on board since the beginning of the year and now a new director for the Crawford School has been appointed and will start later this year. We are also working out again how the various economics units at ANU relate to each other... I originally agreed to be director of the Crawford economic program for a year. That will certainly continue now to the end of this year. It's not clear whether I'll need to continue in the role longer than that.

Finally, here is a list of all papers published so far this year or now in press. I can't remember how many of them I mentioned on the blog, though I probably mentioned all on Twitter:

Bruns S. B. and D. I. Stern (in press) Research assessment using early citation information, Scientometrics. Working Paper Version | Blogpost

Stern D. I. and D. Zha (in press) Economic growth and particulate pollution concentrations in China, Environmental Economics and Policy Studies. Working Paper Version | Blogpost
 
Lu Y. and D. I. Stern (2016) Substitutability and the cost of climate mitigation policy, Environmental and Resource Economics. Working Paper Version | Blogpost

Sanchez L. F. and D. I. Stern (2016) Drivers of industrial and non-industrial greenhouse gas emissions, Ecological Economics 124, 17-24. Working Paper Version | Blogpost 1 | Blogpost 2

Costanza R., R. B. Howarth, I. Kubiszewski, S. Liu, C. Ma, G. Plumecocq, and D. I. Stern (2016) Influential publications in ecological economics revisited, Ecological Economics. Working Paper Version | Blogpost

Csereklyei Z., M. d. M. Rubio Varas, and D. I. Stern (2016) Energy and economic growth: The stylized facts, Energy Journal 37(2), 223-255. Working Paper Version | Blogpost

Halkos G. E., D. I. Stern, and N. G. Tzeremes (2016) Population, economic growth and regional environmental inefficiency: Evidence from U.S. states, Journal of Cleaner Production 112(5), 4288-4295. Blogpost

I am giving a seminar at Arndt-Corden on Tuesday 17th March at 2pm (Seminar Room B, Coombs Building, ANU) titled: "Directed Technical Change and the British Industrial Revolution". The abstract isn't entirely accurate any more - well specifically you won't see me talk about the last two sentences as we don't use a Monte Carlo analysis and we left the low elasticity of substitution for further research. We (myself, Jack Pezzey, and Yingying Lu) are close to having a paper that we are ready to put out as a working paper and submit to a journal. So, am looking forward to getting some useful comments to help us get there.

The system of dating years since some ancient point in the past used today by the Western, Islamic, and Hebrew Calendars among others makes it much easier to remember how old you are. If you know you were born in 1964 or 5725 and know that this year is 2015 or 5775, it's easy to work out how old you are. But in ancient Rome it seems that it was not even common to date years by the number of years the emperor had ruled, let alone since the foundation of Rome. It was more common to name years by the names of the consuls in office. So, it's not surprising that there is a lot of age-heaping on Roman tombstones. Gregory Clark argues that this shows that Romans were very innumerate. That might be partly true, but the lack of a proper dating system also needs to be taken into account.

I am giving three seminars in Europe in October and November. First up is 28th October at 1pm at the Grantham Research Institute on Climate Change at the London School of Economics. I will talk about "Energy Transitions and the Industrial Revolution." Then on 12th November at 2:15pm I will talk at the Department of Economic History at Lund University. Topic: "Energy and Economic Growth: The Stylised Facts"  - a topic that blog readers should be pretty familiar with by now.


Finally, I will be presenting at the University of Kassel in Germany on 18th November. More details to come.

Ed Prescott (Nobel Laureate in Economics) will give the Trevor Swan Distinguished Lecture at ANU on 13th August. The lecture will be titled: Neoclassical Growth Theory: From Swan to Now. The blurb says:

"The Swan 1956 growth model is the cornerstone of secular growth theory. To broaden the model to encompass aggregate business cycle fluctuations Kydland and Prescott added an aggregate household to explain investment- savings and labor-leisure decisions. With this addition, neoclassical growth theory came into existence. Extensions of this theory have proven successful in the study of stock markets, growth miracles, prosperities and depressions, alternative tax policies, and differences in aggregate labor supply across countries and time. Deviations from the predictions of this theory are puzzles to be resolved and their resolutions have advanced neoclassical growth theory."

Unfortunately, I have to teach at that time, but I am hoping it will be recorded and some people will ask some good questions. Some of Prescott's work on growth is pretty fundamental to our current research on economic growth and economic history.

Some interesting blogposts from Nick Szabo on the Malthusian trap and the breakout to economic growth. Follow the link in the post back to previous blogposts.

Energies is an open access journal on all topics relating to energy. I have agreed to be the guest editor of a special issue on energy transitions and economic change. The journal is indexed in both the Web of Science and Scopus with an impact factor of 1.844 (5 year IF = 2.087) and a SNIP of 1.296 (SJR = 0.543). I am looking for contributions on all topics related to energy transitions past, present, and future (the theme of my current funded research project) and related economic changes. I'm looking for a broad interpretation of energy transition to include not just changes in energy carriers used but also in the scale of energy use. Some of the topics that could be covered are:

• economics of new renewable energy technologies
• energy efficiency and the rebound effect
• energy ladder in developing countries
• historical energy transitions (biomass to coal, coal to oil etc.)
• role of energy in economic growth
• energy and climate change
• energy security
• peak oil
• economics of unconventional fossil fuels

 But this is just to give you an idea of the type of papers we are looking for. The deadline for submissions is 15 July 2014 but early submissions that pass the refereeing process before that date will be published before then.

I look forward to some interesting submissions and will update the blog with progress.

During my recent visit to Sweden, we successfully revised and resubmitted a paper, titled: "Economic Growth and the Transition from Traditional to Modern Energy in Sweden". We have now made it available as a working paper in the CAMA Working Paper series.

This paper follows up on the paper we published last year in the Energy Journal. That paper looked at the paradox of energy and growth. How could energy have been important in the Industrial Revolution yet be a fairly small portion of production costs today. The new paper looks at the relative contributions of changes in the quantity, quality, and related technology (so called factor augmenting technical change) of traditional (biomass, animal power) and modern (fossil fuels and hydro-electricity) to economic growth in Sweden between 1850 and 1950. This was the period of the energy transition to modern energy in Sweden.


The graph shows that in 1850 less than 5% of energy in Sweden was derived from modern energy sources. By 1950 around 80% was. There are two large spikes in the share of traditional energy associated with the World Wars when imports of fossil fuels were restricted. The share of biomass in Sweden today is higher than it was in 1950. Because the share of modern energy was so small in the early years, even though the rate of improvement in the efficiency with which it was used was in fact higher than that of traditional energy, it contributed less to growth than traditional energy did. Over time, as the share of modern energy increased, this changed so that modern energy innovation and the increase in the use of (quality adjusted) modern energy contributed more to growth. However, according to our data and model, innovation in energy came to a halt towards the end of this period. By contrast, the role of labor augmenting technical change, which includes both better management of labor, increased human capital per worker etc. accelerated smoothly over time to become the most important driver of growth. Of course, Stern and Kander (2012) found this too. It's nice that the results in the two papers match! :)

The table presents the detailed growth accounting results. We actually computed these contributions for every year and then the table provides averages for each 20-year period. Betwen 1870 and 1910 growth was at first slower and then faster than our simple model fitted to the data predicts. But we found that giving the model more degrees of freedom to fit the wiggles in the data could lead to nonsensical results. It's also possible that it is the data that is mismeasured.

What the data implies is that it took a long time for the innovation in using modern energy to diffuse through the economy as the quantity of modern energy used increased. The following graph shows the rate of (factor-augmenting) technological change associated with each of the three inputs (the model also has capital but we assume its rate is zero):


We probably shouldn't take the negative values too seriously, but as noted above, fitting a more complex model was challenging. There was very rapid innovation in the use of modern energy in 1850-1890 starting at about a 7% per year increase in productivity and falling to about 3% a year. But the contribution to growth in the table started at 0.03% per year and rose to 0.08% per year over this time. Growth accounting type exercises, by attributing all the effects of an innovation to the year it happens, are extremely conservative. In later years, when the quantity of modern energy was much larger, that energy contributed more to growth than it would otherwise have done because those earlier innovations had permanently increased the marginal product of modern energy (ceteris paribus of course...).