The weak link between energy and growth

I’ve been thinking a lot about the relationship between energy and growth lately, which is less clear-cut than you might expect. I’ll be writing more about this soon, but this set of papers on energy and development does a nice job illustrating part of why it’s so complicated. Colmer, Lagakos and Shu, in a paper revised and published last month, find that improving productivity in the energy sector might not actually affect GDP growth very much, casting doubt on the idea that energy is a critical “weak link” driving development outcomes. However, a 2020 paper by Fried and Lagakos (yes, same coauthor) shows why the energy/growth link might still be an important driver of productivity, even if it’s more complicated than more generation > more growth; they model long-run general equilibrium effects of eliminating power outages at about 20% of GDP for a sample of 5 African countries. Together, these imply that growth effects might be asymmetrical – resources wasted on expensive self-generation, and the high cost of entry this creates for new firms, might be more important as a drag on growth than new generation capacity is as an accelerant.