Title: Exergy versus labour in aggregate production functions: estimates for ten large economies

Authors: Robert U. Ayres; Ivan Savin; Jeroen Van Den Bergh; Lu Hao

Addresses: INSEAD, 77305 Fontainebleau, France ' Institute of Environmental Science and Technology, Universitat Autònoma de Barcelona, Spain; Graduate School of Economics and Management, Ural Federal University, Yekaterinburg, Russian Federation ' Institute of Environmental Science and Technology, Universitat Autònoma de Barcelona, Spain; ICREA, Barcelona, Spain; School of Business and Economics and Institute for Environmental Studies, VU University Amsterdam, the Netherlands ' Zhejiang Institute of Administration, No. 1000, West Wenyi Road, Hangzhou, China

Abstract: One can distinguish active (machines) from inactive (infrastructure) capital. Active capital consumes useful energy (or exergy) to do thermodynamic work that muscles and brains usually do. We use data for ten large economies and find that exergy performs just as well as, and hence can replace labour in a Cobb-Douglas production function. This result is robust for each country separately and for all countries estimated together. Furthermore, in estimating a three-factor model (capital, labour and exergy), the coefficients of all three factors are positive and significant when all countries are estimated together. When testing for each country separately the coefficient of exergy, unlike that of labour, is significant for China and Japan, while the opposite holds for the USA and the UK. Our findings underpin the essential role of energy behind GDP growth, and the relevance of exergy as either a substitute or complement for labour in aggregate production functions.

Keywords: GDP; Cobb-Douglas function; energy; capital.

DOI: 10.1504/IJEX.2022.124175

International Journal of Exergy, 2022 Vol.38 No.3, pp.320 - 332

Received: 04 Aug 2021
Accepted: 06 Sep 2021

Published online: 15 Jul 2022 *

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