Energy and machines. Energy capital ratios in Europe and Latin America. 1875–1970

ABSTRACT

The relationship between energy and capital is one of the most important aspects of modern economic growth. Machines need energy to produce all the goods we enjoy; energy would be far less useful for humankind in absence of machines. However, the great majority of the economic models do not take into account the elasticities of substitution (or complementaries) between these two main variables. Actually, energy is absent in many growth models and discussions on diverging economic development paths. We approach this relevant issue from a new perspective: energy and capital relations during 100 years. We use the latest estimations of capital stock (machinery and equipment) and energy consumption for Latin America and compare them with those of Western Europe. The energy–capital ratio (how much energy is used per unit of capital) could be a predictor of economic growth, thus providing stylised facts about the timing and causes of the different modernisation patterns of these regions and showing us some answers on the long-run relationship between energy consumption and capital accumulation.

KEYWORDS:

• Capital stock
• energy
• energy efficiency
• Latin America
• Europe

JEL Classification:

• N70
• N10
• O33
• Q43

Acknowledgments

We thank Astrid Kander and participants at the Lund University Economic History Seminar, the University of Groningen SOM PhD Conference, El Colegio de México Economic History Seminar, University of Barcelona Economic History Seminar, Public University of Navarra, Economics Department Seminar, the Forum RIDGE in Montevideo and the Economic History Seminar at Umeå University for their valuable feedback on this paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Cristián Ducoing http://orcid.org/0000-0002-0970-0850

Rick Hölsgens http://orcid.org/0000-0002-0408-4438

María del Mar Rubio-Varas http://orcid.org/0000-0002-8100-2651

Notes

1 Following the definition in Gales et al. (2007), we define as traditional energy carriers firewood, food for the population and fodder for draught animals, direct working water, wind and peat and as modern energy carriers coal, oil, natural gas and primary electricity (hydroelectricity and nuclear).

2 See, for example, Bulmer-Thomas (2003) and Maddison (2007).

3 .In their 1993 extension of the 1991 paper, they confirm this relationship especially for developing countries (De Long & Summers, 1993). In this same line, is worth to mention the article by Delong (1992), about the relationship between equipment investment and productivity in the long run.

4 Notice that Kander et al. speak of the capital to energy ratio (K/E), hence they speak of increases in the K/E ratio, rather than its reverse.

5 Based on Stern and Kander (2012).

6 Warr and Ayres (2012) found that, before the rise of ICT, exergy can largely explain the Solow-residual . After the 1970s exergy is no longer the sole explanation for TFP, the ICT-revolution turned information in a major factor increasing total factor productivity.

7 See also Kander et al. (2013, Figures 10.11 & 10.12); the only noteworthy exceptions are the UK and Germany at the height of their industrialisation.

8 We use the most recent and revised data (Gales et al., 2007).

9 The UK shows a similar trend in per capita consumption, as Britain was the workshop of the world in the late nineteenth century, this is less remarkable.

10 For an analytical description of the long-term evolution of Gross Fix Capital Formation in Latin America, see Tafunell (2013). Series from Uruguay were contrasted with the work done by Román and Willebald (2015).

11 The post-Second World War boom in energy consumption was a historical anomaly. During this period, characterised by Pfister with the 1950s syndrome, energy seemed to be available in unprecedented and unlimited supply (Pfister, 2010).

12 Figure 3 represents the Modern Energy/Machinery & Equipment ratio in a longer period.

13 Note that, as mentioned before, Kander et al. and Csereklyei et al. used total energy consumption and total capital stock; due to data limitations, we were compelled to restrict our analysis to modern energy consumption and capital stock in machinery and equipment.

Additional information

Funding

Cristián Ducoing acknowledges the funding by Comisión Nacional de Investigación Científica y Tecnológica (CONICYT), Chile, with the project PAI:82130021 and Jan Wallanders och Tom Hedelius Stiftelse samt Tore Browaldhs Stiftelse ‘Engines for sustainability. Horsepower prices, capital substitution and energy transitions in the long run’. Mar Rubio acknowledges the financial support by Ministerio de Educación, Cultura y Deporte Spanish Government, project HAR2017-86086-R.