Exploring the links between total factor productivity, final-to-useful exergy efficiency, and economic growth: Case study Portugal 1960-2014

João Santos (), Afonso Borges and Tiago Domingos

MPRA Paper from University Library of Munich, Germany

Abstract: Mainstream economic growth models downplay the role of energy, while attributing most of growth to an exogenous residual – total factor productivity (TFP). This makes them unsuitable to tackle the challenge of marrying sustainability and economic development targets. Meanwhile, research suggests that measuring energy at the stage where it’s actually productive (useful), and in exergy terms (in thermodynamics, the potential to do work), unlocks new insights concerning energy’s strong link with economic output. In this work we test for relationship linking TFP and final-to-useful (F-to-U) exergy efficiency, resorting to both observational and statistical methods (cointegration). Several models are considered, assessing the impact of: a) disaggregating capital inputs (i.e. buildings, stationary, non-stationary); b) quality-adjusting labour; c) disaggregating F-to-U exergy efficiency (stationary and non-stationary end-uses). Results for Portugal (1960-2014) show that TFP can be proxied by changes in F-to-U exergy efficiency, namely for stationary end-uses. This link is strengthened when disaggregate capital, and schooling-corrected labour measures are considered. When TFP is estimated as a function of F-to-U exergy efficiency, virtually all of long-term economic growth is explained by directly measurable capital, labour, and exergy efficiency in production. Resulting models provide satisfactory explanations of economic growth, founded on energy use and efficiency.

Keywords: economic growth; total factor productivity; energy efficiency; useful exergy; aggregate production function; cointegration analysis (search for similar items in EconPapers)
JEL-codes: C51 D24 O11 O13 O47 Q43 (search for similar items in EconPapers)
Date: 2020-02-28
New Economics Papers: this item is included in nep-eff and nep-ene
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