Abstract
Historical experience shows that the economy-wide energy intensity develops nonmonotonically like an inverted U, which still lacks direct theoretical explanations. Based on a model of structural change driven by technological differences, this paper provides an attempt to explore the underlying mechanisms of energy intensity change and thus to explain the above empirical regularity accompanied by structural transformation, through introducing a nested constant elasticity of substitution production function with heterogeneous elasticities of substitution. According to some reasonable assumptions, this extended model not only describes the typical path of structural change but also depicts the inverted-U development of economy-wide energy intensity. With the availability of Swedish historical data, we take calibration and simulation exercises which confirm the theoretical predictions. Furthermore, we find that: (1) elasticities of substitution may affect the shapes and peak periods of the inverted-U curves, which can explain to a certain extent the heterogeneous transitions of economy-wide energy intensity developments in different economies; and (2) over long periods of time, the economy-wide energy intensity determined by the initial industrial structure and sectoral energy intensity tends to grow upward, while structure change among sectors provides a driving force on reshaping this trend and turning it downward.
Highlights
A large number of studies have shown that in the process of industrialization, economy-wide energy intensity universally grows like an inverted U
How does this empirical regularity be theoretically explained? To our knowledge, the interpretations of such fact mainly come indirectly from the Environmental Kuznets Curve (EKC) hypothesis (e.g., [4,5,6,7]), with a lack of direct research from inside the economic system. This kind of work is of vital importance since the inverted-U change of energy intensity implies that the economic system itself has a dematerialization mechanism that can reduce its dependence on energy endogenously, and mitigate the climate problems eventually
We relate the inverted-U change of overall energy intensity to Kuznets facts that describe the typical path of structural transformation in the process of industrialization, and analyze how structural transformation leads to the inverted-U evolution of economy-wide energy intensity with a three-sector growth model
Summary
A large number of studies have shown that in the process of industrialization, economy-wide energy intensity universally grows like an inverted U (see, e.g., [1,2,3], or Figure 1). The above two theoretical studies mainly focus on the identification of general mechanisms of energy intensity change with two-sector growth models and some numerical examples, but pay no attention to the energy intensity change under the background of industrialization, which is more general and valuable for those developing countries to formulate energy policies In this regard, we relate the inverted-U change of overall energy intensity to Kuznets facts (see, e.g., [35,36]) that describe the typical path of structural transformation in the process of industrialization, and analyze how structural transformation leads to the inverted-U evolution of economy-wide energy intensity with a three-sector (agriculture, manufacturing, and services) growth model.
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