1. SUMMARY Energy and economic Development
(Toman and Jemelkova, 2003)
(Toman and Jemelkova) mentioned that the current way the relationship between energy and
economic development are studied has mainly focused on the analysis of energy development
as a result from economic development and not otherwise.
The fact is that energy development and economic development are strongly correlated but
the causality between them is still matter of discussion. there are doubts about energy´s
absolute transcendence.
Development depends on many factors from which energy can be proven as one of the most
important. There is always a trade-off between factors for development when allocating
resources for development. By knowing the role of energy as a causal factor and its impact on
economic development, policy makers, project developers, governments and development
organizations can allocate resources to energy development in order to achieve the highest
returns on economic development. (“This is not just an academic question; energy
development competes with other development opportunities in the allocation of scarce capital
and in the allocation of scarce opportunities for policy and institutional reform.”)
There are many potential synergies between energy provision features and development, it
has been found (e.g. by (Schurr))1 that changes towards less energy-intensive productive
activities, increase in thermal conversion efficiency, the use of more flexible energy forms and
energy provision quality (rather than “physical availability per se” (Schurr) cited by (Toman and
Jemelkova)) generate positive effects on economic development.
Nevertheless the main approach of economics with respect energy and economic
development is energy development is driven by economic development and how to make
energy available and improved for developing countries instead of defining how “how energy-
1
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2. using societies develop” and how energy could boost development processes. By taking the
second approach, the dynamics of the economic system should be analyzed to define the
characteristics of energy provision input and the system response to that so to achieve
increasing returns to investment on energy (Z. Guevara). For this (Toman and Jemelkova)
pointed out that in literature much has been said about the effects of energy in production at
the micro level but less about macro-level (economy-wide level).
Energy and Development: conceptual Linkages
“The linkages among energy, other inputs, and economic activity clearly change significantly as
an economy moves through different stages of development”. The relationships between the
two are always dependent in the so-called energy ladder (i.e. form primary biomass less
efficient energy provision to electricity-based provision). However the advantages of a known
ladder imply the adaptability an early application of more advance energy provision to early
stages in the energy ladder.
Demand and supply highly depend on the cost of energy. Energy provision is costly and the
financing could be troublesome, many inputs are required and certain characteristics of
utilization must be met. However demand shows a “subtle optimizing behavior, given the
constraints faced by the economic actors (Barnes and Floor, OTA, 2003)”2. To increase the
outcome of transaction supply-demand barrier removal is the most used approach3.
( )
( )
( )
This simple model helps highlight the way in which energy can be used to generate increasing
returns. However this model does not consider other intermediate goods, environmental
residuals and the impact of specialization to classify human capital.
Increased benefits of baseline
consumption
Full cost of infra CS for increased
marginal lighting lighting
use
2
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3
Not increasing benefits?

3. Provision of energy services
If increasing returns of energy provision (IREP), it follows that increased energy provision at the
expense of reducing investment in other development factor would induce a higher economic
growth level. IREP is different at different scales, while in large scale they require as well large
investment in infrastructure for applying large provision. in small scale the most important
benefit Is the reallocation efforts in other activities and economic structures (specialization,
education, production) rather than in the getting energy provision (reducing the opportunity
cost of energy provision).
Utilization of energy services
Increasing returns of energy utilization (IREU) should be pursued by improving the marginal
utility/productivity of energy over a wider specific range
( )
The A’s are known as factor augmentation terms by which the contribution of H and K can be
enhanced by other variables. In endogenous theory this factors are increased through R&D
activities, education and provision of public goods. If IREP and IREU, energy provision have an
augmentation effect on the factors of production in the contrary to that none effect with the
sole contribution of the energy availability per se.
Additionally, higher and lower quality energy can be included in the models to recognize the
need of the trade-off between these two types of energy in order to get the maximum benefits
with scarce resources.
Reliability: energy provision would pursue a reliable distribution in order to avoid disruption of
provision and the cost associated to it that could be really high (blackouts and equipment to
support generation)
Increase of factor productivity by switching the energy paradigm into other which enhances
efficient use of resources and time. For example by improving education through lighting,
health by better powered equipment for indoor conditions
Synergy with other infrastructure and services, for example transportation, large scale,
telecommunication and efficient markets can be supported and boosted by energy availability.
Channels for Increasing Returns
Note: limitations to separate the effect of just energy in the analysis of results to determine
IRP/U effects
 reallocation of household time (especially by women) from energy provision to
improved education and income generation and greater specialization of economic
functions;
• economies of scale in more industrial-type energy provision;

4. • greater flexibility in time allocation through the day and evening;
• enhanced productivity of education efforts;
 with more flexible and reliable as well as plentiful energy, greater ability to use a more
efficient capital stock and take advantage of new technologies;
 lower transportation and communication costs: greater market size and access, more
access to information (the combined result of energy and other infrastructure); and
 health-related benefits: reduced smoke exposure, clean water, and refrigeration
(yielding direct benefits and higher productivity).
“This discussion of how increased energy availability may promote different stages of
development also underscores the need to think about more than energy development in
isolation”. E,g by looking at the future of the labor services freed from energy provision
obtaining (e.g. directing them to education). However “Attempts to expand energy availability
will accomplish little if bottlenecks to such investments are not overcome.” for example the
institutional transformation, that will help the effect of energy provision to flow smoothly
without barriers and that enehance the effective use of IREP/U. Another constraint and flaw of
this approach Is an stuborn attention to the supply side without considering deman side
effects (e.g. rebound effects).
Empirical illustration of energy-development linkages
These linkages can be analyzed through input-output analysis in addition to the consideration
of other development factors. “One could explore the questions addressed above using
macroeconomic data on income or production, energy utilization, capital investment, human
knowledge acquisition, and other factors”. However the discussion of the processes between
energy provision and its consequences shows a complexity that cannot be dealt with simple
macroeconomic relationships. 1st method: make conclusion of the development process from
the analysis of cross-section analysis (risky) 2nd method, developed a general equilibrium
model though is not suitable for the approach in this paper. 3rd method: microeconomic
analysis of consequences. (OTA) and the The World Bank (1994)4 showed experiences in which
energy progress aimed economic progress though there is no economic value analysis of
energy advances.
Energy and industrial progress
Review better (Schurr, 1982, Schurr, 1984) and for a more econometric approach (Jorgenson,
1981, Jorgenson, 1984). “From the standpoint of the theme of this paper, we can likewise
conclude that patterns of energy use do seem to have some important broader productivity
implications, but more work is needed to determine their importance vis-à-vis other influences
and to understand the interactions between energy and non-energy influences”.
4
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5. Rural Household Energy Use
For example (The World Bank) and (ESMAP) which prove that The availability of electricity
appears to markedly accelerate the rate at which household income rises with years of
schooling. In addition, electricity appears to be the most important service among those
considered for improving household welfare and access to two or more infrastructure services
appears to have greater-than-proportional impacts on household income, so there appear to
be some economies of scope in infrastructure service provision.
Concluding Remarks
• The influence may be especially important at lower levels of development, where the
overall opportunity cost of less efficient energy forms and the relative payoff from use
of more efficient forms seem especially high.
• econometric analysis along the lines of Jorgenson’s work also can be pursued, but with
underlying models that make it possible to investigate a wider range of ways in which
energy could drive economic progress
• The ultimate practical importance of such work is not just in the documentation of
benefits from improved energy availability: the analysis would also illuminate
complicated choices among different strategies for improving energy availability
• General equilibrium research on the energy-development linkage also would need to be
undertaken.
• The models need to be constructed in a way that reflects the structural and
institutional realities of developing economies.
BARNES, D. F. & FLOOR, W. M. 1996. Rural energy in developing countries: A challenge for
economic development. Annual Review of Energy and the Environment, 21, 497-530.
ESMAP.2002. Rural electrification and development in the Philippines: Measuring the social
and economic benefits [Report]. Washington, DC: The World Bank, ENERGY SECTOR
MANAGEMENT ASSISTANCE PROGRAMME.
JORGENSON, D. W. 1981. Energy Prices and Productivity Growth. The Scandinavian Journal of
Economics, 83, 165-179.
JORGENSON, D. W. 1984. The Role of Energy in Productivity Growth. American Economic
Review, 74, 26-30.
OTA.2003. Fueling development: Energy technologies for developing countries. Office of
Technology Assessment.
SCHURR, S. H. 1982. Energy efficiency and productive efficiency: Some thoughts based on
American experience. Energy Journal, 3, 3-14.
SCHURR, S. H. 1984. Energy Use, Technological-Change, and Productive Efficiency - an
Economic-Historical Interpretation. Annual Review of Energy, 9, 409-425.
THE WORLD BANK 1994. World Development Report 1994: Infrastructure for development,
New York, NY, Oxford University Press.
THE WORLD BANK 1999. Poverty and social developments in Peru, 1994-1997, Washington, DC,
The World Bank.
TOMAN, M. A. & JEMELKOVA, B. 2003. Energy and economic development: An assessment of
the state of knowledge. Energy Journal, 24, 93-112.