Energy Policy Project EU - 5

8/12/2019 Energy Policy Project EU - 5

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Economic Growth and theRole of Energy Policy


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TABLE OF CONTENTS

INTRODUCTION .......................................................................................................................... 1

RESEARCH METHODS ............................................................................................................... 1

DATA ANALYSIS AND RECOMMENDATIONS ..................................................................... 3Austria ............................................................................................................................................. 3

Denmark .......................................................................................................................................... 5

Finland ............................................................................................................................................ 7

Sweden ............................................................................................................................................ 1

CONCLUSION ............................................................................................................................... 2

REFERENCES ............................................................................................................................... 3APPENDIX15


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INTRODUCTION

The economic growth rate of the country affects from many key factors and the key

production factors are energy, capital and labour. Energy is considered as the oxygen for the

economic growth rate of the country and it plays very important role in the production in the

economy, consumption level and in many other developmental factors of the country. In the

present report to analyse the importance of the economic growth rate in the economy of the

country, the data of EU 15 countries from the year 1960 to 2009. Through this the importance of

the energy in the economy growth rate of the countries Sweden, Denmark, Finland and Austria is

taken. These collected data is analysed with the help of statistical tool and on the basis of which

the relationship between the growth rate of GDP with the labour growth, capital growth and

Useful Work Growth will be measured.

This commentary depicts the relation between the primary factors of Labour & Capital along

side energy in influencing the economic growth or the GDP growth, to a further extent the role of

useful energy in economic production.

The mainstream economics have yet to include the contribution of natural resources or energy in

enhancing or facilitating economic growth. Although the report consists of a combined outlook

of the three factors (Capital, labour and useful energy) affecting economic growth, the useful

energy factor is solely analysed to determine the key factors that could strengthen or reduce the

linkage between useful energy and GDP growth over time. The primary factors identified were -

1) Substitution between various forms of energy and other resources within the prevailing

technology available for the period

2) Changes in the composition of energy input from the previous period

3) Technological change

4) Changes in the composition of economic output

It is useful to first understand how different affecting factors were incorporated into the three

primary factors stated. Empirical evidence of the factors is crucial to signifying a co-relation or

impact of useful energy over economic output. Due to the complexity of the data available the

primary factors providing a linkage between useful energy and economic output cannot be used

as evidence or appropriation in this instant. The neoclassical theory states that the technological


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change being the main contributor towards continuing economic growth. As seen with capital

employed providing diminishing returns overtime the way of offsetting such return would be

raising state of technological knowledge providing higher return on capital. Again its is difficult

to provide technological change data effecting economic growth, so its considered to be

incorporated in capital figures for research and development and productivity measure for

labour, while a reducing gap between Exergy total primary energy and useful e nergy could

show technological enhances.

Ordinary linear regression and non-linear functions will be used as the method of graphing the

three factors with the GDP growth with further analysis explaining the general trend of these

factors influencing the GDP growth. The changes in the levels of capital, labour and useful

energy is calculated observing the effect of the change of each factor on the GDP growth for the

periods stated. The trend over a period of time is seen with other factors assumed to be at

constant. The graphs depict the points of policy restructuring during the periods of recessions or

other downturns in the economy.

RESEARCH METHODS

For the report the data of countries Sweden, Denmark, Finland and Austria is gathered.

Quantitative technique of research method is used to investigate the data and it is represented in

the different graphical forms. This data is gathered from the year 1960 to 2009 and with the help

of regression analysis the relationship between these variables is measured. Excel is used to

observe the relationships between the given variables and couple other selected ones, to depict

linear movements among the variables, whereas Statplus is applied for the linear and non-linear

functions. The dependant variable is consistent through out the paper being the GDP growth for

each country. While the independent variables are constant for the Labour and Useful work,

where the growth has been taken into consideration as one of the most appropriate factors

affecting GDP. For countries where the impact of capital was not seen as significant, the capital

growth was observed for the case of Sweden, Denmark and Finland. Capital is seen as an

influencing factor for the Austrian economy.


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DATA ANALYSIS AND RECOMMENDATIONS

Austria

Analysis: The above graphs plotted establish the relationship between the dependent variable

GDP growth and independent variables capital, useful growth and labour. While plotting the

graph for GDP growth and labour growth the value of R Square is coming out to be 0.002. This

value shows that there is a very weak relationship between the two variables. Labour variable haslowest effect on the GDP. This is probably happening because of the recession effect on the

various companies. Increase in the costs of labour can be the cause for it (Nienhaus, 2002). This

suggests that labour factor contributes at minimum level towards the Austrian economy.

While plotting the graph for GDP and Capital growth the value of R Square was recorded

as 0.326, which also reflects that there is weak relationship between the two variables. This

shows that capital has low amount of effect on the GPD of Austria. It means capital involvement

in the countrys economy is very low. The net capital stock at constant prices for the economy is

very low. Another reason could be the less encouragement to foreign investments and exports in

the country.

While plotting the graph for GDP and Useful work growth variables, the value of the R-

square recorded was 0.236. This value shows that there is a weak relationship between the two

variables. It can be observed that Useful wok growth has very low impact on the GDP of Austria.

-0.0800-0.0600

-0.0400

-0.0200

0.0000

0.0200

0.0400

0.0600

0.0800

0.1000

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G r o w t h

Year

AUSTRIA

Growth GDP and Production Factors

GDP Growth Labor Growth Capital Growth Useful Work Growth


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It means that minimum amount of work required to produce an energy transfer is not appropriate

or adequate.

Recommendation on poli cy impli cations: It has been derived that contribution of labour factor is

very low towards the Austria economy. So there is need to increase the labour output in thenation. Government policies must focus on increasing the rate of labour output in the country.

The country should focus on increasing jobs and employment for the people who are

unemployed. Further it was observed that capital involvement in the GDP is very low. Capital

can be increased by encouraging investments and reserves policies in the country (Tom, 2004).

Further the measure that can be adopted is raising the exports. Again a weak relationship was

observed between the GDP and Useful work. It was derived that useful work factor has very low

impact on GDP of the nation. The country sh ould make efforts to improve the useful work by

offering low prices subsidies regarding energy to the firms.


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the contribution from labours in the economy. Policies of the government must focus on

increasing the rate of labour output in Denmark. They can work on bringing new employment

policies and jobs for the individuals who are unemployed. Further it was observed that capital

engagement in the GDP is very low (Graziano, 2012). This can be improved by increasing the

amount of capital incentives and foreign investments. There is a need to raise the amount of

revenues and reserves. There is a need to increase the level of exports in the economy. Apart

from that weak relationship was observed between GDP and Useful work. The useful work of

the country can be improved by offering cheap subsidies to the energy sector companies such as

coal, electricity, oil, natural gas etc. Government of the Denmark must focus on all the three

factors considering them very significant for the GDP.


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labour policy and focus more on the useful work and capital of the country. Government have to

take initiatives in the area of the useful work and capital that is on the capital stock of the

country. The ability of the energy to contribute towards the growth in the economy of the

country is low (Rugina, 2001). For this a recommendation is made for the implication of the

policy that is to give more importance towards the useful energy and new investment plans are to

be implemented so that demand and supply of the energy is to be meet in appropriate way.


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Sweden

Analysis: On analysing the relationship between the GDP and labour growth of the Sweden, the

contribution of the employees in the economy of the country was increasing in comparison to its

previous year results. R square is 0.263 and this shows that the contribution of the skilled labour

of the country in the growth rate of the economy is not at higher rate. The contribution of the

labour in the market of the country is increasing after the year 2004 and there was also high

increase in the productivity of the Sweden and huge focus is made towards the export sector.

Increase in the low wage rate of the labour of Sweden has increase in the recent years and this

also was one of the key reasons in lower contribution of the labour in the GDP of the country.

Measuring the relationship between the GDP and Capital growth of the country, the

economy of the nation was mainly suffered from the crisis of the year 1990. Growth rate of the

capital of the Sweden and lower contribution of the capital in the period of 1990s was due to the

restructuring of the tax system of the country for controlling the inflation has made negative

impact on the country. Due to this the bubble of financial crisis burst in the Sweden and affects

the entire economy of the country. From the value of the R square can be justified that why the

relationship between the GDP and Capital is only 0.157. Considering on the relationship between

the GDP and useful work, it was 0.247 and higher than the outcome of the GDP and capital.

There was good involvement of the energy resources in the contribution of the economy of the

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Year

SWEDENGrowth GDP and Production Factors

GDP Growth Labor Growth Capital Growth Useful Work Growth


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country. It also represents that the all the energy services demanded by the final consumers were

meet by the country and from year 1960 to 2000, it was increasing at good rate but after the year

2000 there fluctuation in the growth rate of the useful work (Howell, 2009).

Recommendation on poli cy impli cations: For the implication of the policy in the Sweden, it is

essential that the government should focus on the labour or towards the productivity of the

nation. It is essential that more policies are to be implemented for the promotion of the exports

and increase in production of goods and services in the nation (Artis and Nixson, 2007). Better

policies of exports in the country also assist the nation to increase in capital of the country as it

also plays key role in increasing the growth rate of the economy. Focusing on implementation of

proper policies for the capital growth, labour growth and increase in usage of energy resources

will help to increase the growth rate of the economy.

Cost-efficiency should be seen as a primary hurdle for Sweden, observing that return on capital

is gradually decreasing the scope of furthering the impact on GDP would have to arise from the

efficiency in the Labour and Useful energy factors. Although a framework has been developed

for the 2030 action plan, the implementation through diverting investments to more efficient

sources is required with the support of the R&D department. The requirement of smarter grid

systems will contribute towards the efficient use of useful energy, the while also building on the

shared vision of decarburization of the Swedish economy through efficient channelization of

incoming investment will facilitate them meeting their action plan.

CONCLUSION

From the above study it has been concluded that labour capital and useful work plays

very significant role in the growth rate of the economy of the countries. The major impact, which

was encountered by the economies of Sweden, Denmark, Finland and Austria, was due to the

financial crisis. To boost the economy of the country, it is essential that policies are implemented

with consideration to the labor and energy utilization segments.

The 4 countries chosen have a similar energy outlook with Sweden, Denmark and Finland with a

similar capital growth with improvements for labour efficiency and useful energy efficiency

providing the scope of the for the furthest movement of influence on the GDP factor. Main factor

to improve efficiency in the useful energy sector though focuses on making the transportation

system more efficient.


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REFERENCES

Journals

Graziano, R. P., 2012. Converging worlds of activation?: Activation policies and governance in

Europe and the role of the EU. International Journal of Sociology and Social Policy. 32(5/6). pp.312 32.

Howell, E. K., 2009. Europeanization, globalization and domestication: financial services

regulation in the UK. International Journal of Law and Management . 51(5). pp.310 326.

Nienhaus, V., 2002. The European Union in the World Economy and Implications of EU

Policies for Globalisation Efforts of Developing Countries. Humanomics , 18(1). pp.46 67.

Rugina, N. A., 2001. Part I: The European Monetary and Economic Union, in its present form,

exposed to insurmountable difficulties. International Journal of Social Economics . 28(1/2),

pp.71 116.

Tom, E., 2004. Intellectual capital, social policy, economic development and the world

evolution. Journal of Intellectual Capital 5(4). pp.648 665.

Vega, A., Brown, D. and Chiasson, M., 2012. Open innovation and SMEs: Exploring policy and

the scope for improvements in university-based public programmes through a multidisciplinary

lens. International Journal of Entrepreneurial Behaviour & Research. 18(4). pp.457 476.

Books

Artis, M. and Nixson, F., 2007. Economics of the European Union . Oxford University Press.

Woolcock, S., 2012. European Union Economic Diplomacy: The Role of the EU in External

Economic Relations . Ashgate Publishing.


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Energy in Finland [1]

Capita Prim. energy Production Import Electricity CO 2-emission

Million TWh TWh TWh TWh Mt

2004 5.23 443 185 247 87.7 68.9

2007 5.29 424 185 232 90.8 64.4

2008 5.31 410 193 230 86.9 56.6

2009 5.34 386 192 213 81.4 55.0

2010 5.36 423 201 210 88.4 62.9

2012 5.39 84.8 55.6

Change 2004-10 2.5 % -4.4 % 8.8 % -15.1 % 0.8 % -8.7 %

Mtoe = 11.63 TWh, Prim. energy includes energy losses that are 2/3 for nuclear powe r [2]
http://en.wikipedia.org/wiki/Energy_in_Finland#cite_note-IEA2013-1http://en.wikipedia.org/wiki/Energy_in_Finland#cite_note-IEA2013-1http://en.wikipedia.org/wiki/Energy_in_Finland#cite_note-IEA2013-1http://en.wikipedia.org/wiki/Energy_in_Finland#cite_note-Sverigetab49-2http://en.wikipedia.org/wiki/Energy_in_Finland#cite_note-Sverigetab49-2http://en.wikipedia.org/wiki/Energy_in_Finland#cite_note-Sverigetab49-2http://en.wikipedia.org/wiki/Energy_in_Finland#cite_note-Sverigetab49-2http://en.wikipedia.org/wiki/Energy_in_Finland#cite_note-IEA2013-1


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Energy in Denmark [10]

Capita Prim. energy Production Export Electricity CO 2-emission

Million TWh TWh TWh TWh Mt

2004 5.40 233 361 117 35.8 50.9

2007 5.46 229 314 64 36.4 50.5

2008 5.49 221 309 54 35.5 48.4

2009 5.52 216 278 43 34.5 46.8

2010 5.55 224 271 42 35.1 47.0

2012 5.57 34.1 41.7

Change 2004-10 2.8 % -4.1 % -24.8 % -63.6 % 0.0 % -7.7 %

Mtoe = 11.63 TWh. Prim. energy includes energy losses.
http://en.wikipedia.org/wiki/Energy_in_Denmark#cite_note-IEA2013-10http://en.wikipedia.org/wiki/Energy_in_Denmark#cite_note-IEA2013-10http://en.wikipedia.org/wiki/Energy_in_Denmark#cite_note-IEA2013-10


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L in ear Regression f or l abor, capital and useful energy for Au str ia, F in land, Demark and

Sweden

y = 0.0384x - 0.0039R = 0.0026

y = 0.2667x + 0.0245R = 0.3265

y = 0.7178x + 0.0049R = 0.2361

-0.08

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

0.08

0.1

-0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800 G D P G

r o w t h

Labor Growth, Capital Growth and Usefulwork Growth

Austria

Labor Growth

Capital Growth

Useful Work Growth

y = 0.0384x - 0.0039R = 0.0026

y = -0.5319x3 - 9.0327x

2 + 0.4721x - 0.005

-0.06

-0.04

-0.02

0

0.02

0.04

-0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800

G D P G r o w t h

Labour Growth


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y = 0.4956x - 0.0175R = 0.5271

y = 0.1982x + 0.0226R = 0.1485

y = 0.7744x + 0.0068

R = 0.3211-0.1

-0.05

0

0.05

0.1

0.15

-0.1000 -0.0500 0.0000 0.0500 0.1000 0.1500 G D P G r o w t h

Labor Growth, Capital Growth and Useful work Growth

FinlandLabor Growth

Capital GrowthUseful Work Growth

y = 0.4956x - 0.0175R = 0.5271

y = -110.35x 3 + 1.6683x 2 + 1.0424x - 0.0284

-0.08

-0.06

-0.04

-0.02

0

0.02

0.04

-0.1000 -0.0800 -0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800 0.1000 0.1200

G D P

G r o w t h

Labor Growth

Finland


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y = 0.1982x + 0.0226R = 0.1485

y = 14.031x 3 + 0.0066x 2 + 0.1234x + 0.0237

-0.01

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

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G D P G r o w t h

Capital Growth

Finland

y = 0.7744x + 0.0068R = 0.3211

y = 110.55x 3 - 2.6293x 2 + 0.2497x + 0.0189-0.1

-0.05

0

0.05

0.1

0.15

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Useful work Growth

Finland


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y = 0.3709x - 0.0085R = 0.2821

y = 0.1571x + 0.0164R = 0.2001

y = 0.9022x + 0.0007R = 0.1448

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

-0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800 0.1000 G D P G r o w t h

Labor Growth, Capital Growth and Useful Work Growth

Denmark

Labor Growth

Capital Growth

Useful Work Growth

y = 0.3709x - 0.0085R = 0.2821

y = 8.5536x 3 - 3.5793x 2 + 0.5029x - 0.0078

-0.06

-0.04

-0.02

0

0.02

0.04

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G D P G r o w t h

Labour Growth

Denmark


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y = 0.157x + 0.016R = 0.200

y = 10.976x 3 - 1.2931x 2 + 0.173x + 0.0169

00.005

0.010.015

0.020.025

0.030.035

0.04

-0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800 0.1000

G D P G r o w t h

Capital Growth

Denmark

y = 0.9022x + 0.0007R = 0.1448

y = -224.18x3

+ 7.7408x2

+ 1.4462x - 0.009

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

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Useful Work Growth

Denmark


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y = 0.3469x - 0.0064R = 0.2633

y = 0.1913x + 0.0215R = 0.1573

y = 0.7575x - 0.002R = 0.247

-0.06

-0.04

-0.02

0

0.02

0.04

0.060.08

0.1

0.12

-0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800

G D P G r o w t h

Labor Growth, Capital Growth and Useful Work Growth

SwedenLabor Growth

Capital Growth

Useful Work Growth

y = 0.3469x - 0.0064R = 0.2633

y = -43.678x 3 - 1.47x 2 + 0.503x - 0.0067-0.04

-0.03

-0.02-0.01

0

0.01

0.02

0.03

0.04

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Labour Growth

Sweden


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y = 0.1913x + 0.0215R = 0.1573

y = 62.473x 3 - 0.5886x 2 + 0.0449x + 0.0232

00.005

0.010.015

0.020.025

0.030.035

0.040.045

0.05

-0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800

G D P G r o w t h

Capital Growth

Sweden

y = 0.7575x - 0.002R = 0.247

y = 8.5945x 3 + 2.5943x 2 + 0.6611x - 0.003

-0.06

-0.04

-0.020

0.02

0.04

0.06

0.08

0.1

0.12

-0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800 G D P G r o w t h

Useful work Growth

Sweden


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Energy Policy Project EU - 5