Select Committee on Economic Affairs Written Evidence


Memorandum by Professor Angus Maddison FBA

  I am not an expert on climate change. I simply provide background material useful in analysing the historical pattern and prospects of energy consumption, which may be of some use to your committee.

  My submission has four main components:

    (a)  analysis of driving forces of economic growth 1820-2001 in the two successive lead countries, the UK and USA, and those in Japan, the most successfuly catch-up country. It includes an estimate of the movement of their energy consumption in this period;

    (b)  my projections of growth of population and GDP for 2001-30 for different parts of the world economy;

    (c)  analysis of the relation between the growth of world GDP and energy consumption (fossil fuels and biomass) between 1820 and 2001;

    (d)  an explanation of the importance of using PPP converters rather than exchange rates in comparing levels of performance between countries and in establishing measures of aggregate world output, with an illustration of the implausibility of using exchange rate converters in historical analysis or futurology (as in the IPCC, Special Report on Emissions Scenarios, Cambridge University Press, 2000).

WORLD DEVELOPMENT AND OUTLOOK 1820-2030: ITS IMPLICATIONS FOR ENERGY USE

Historical Growth Accounts for Two Successive Lead Countries and the Most Successful Follower Country, 1820-2001

  1.  Table 1 presents growth accounts for the UK, USA, and Japan for 1820-2001. The first two were the successive lead countries in terms of per capita income in this period, the UK to the end of the 1880s, the USA thereafter. Japan was the most successfull of the follower countries, with a per capita level slightly above the average for Western Europe in 2001, and a huge deceleration in growth since 1990. There are now growth accounts of this type for about 40 countries, but none of the others go back to 1820.

  Table 1 quantifies the strategic factors determining the growth experiences of the three countries over the whole period of their "modern" economic growth. The first striking feature is the hugh increase in the stock of physical capital, which was significant for non-residential structures, but sensational for machinery and equipment. The ratio of the latter to GDP rose 16-fold in the UK and USA between 1820 and 2001, and in Japan from 1890 to 2001. This increase was linked to the acceleration of technical progress, much of which had to be embodied in machinery. The increase in human capital, measured by years of formal educational experience of those in employment (weighted by the earnings differential associated with years of primary, secondary and tertiary) was also linked to technical progress. The increasing complexity of production processes required better educated people to make it operational, and the involvement of educated people in R&D helped institutionalise the process of innovation. Here again, there was spectacular change. The educational level rose eight-fold in the UK, 11-fold in the USA and Japan. International specialisation increased very significantly. The ratio of foreign trade to GDP rose from 3 to 27 per cent in the UK, and from 2 to 10 per cent in the USA. Japan was an almost completely closed economy until the 1850s; between 1870 and 2001, the export ratio rose from 0.2 to 13 per cent. Natural resources scarcities were not a constraint; the land area per capita fell 14-fold in the USA, about four-fold in Japan and the UK. The increase in energy inputs was relatively modest in the USA (which made lavish use of its timber resources in the 19th century. Its per capita energy consumption rose only three-fold from 1850 to 2001. The UK was able to make extensive use of coal in the 19th century, and its per capita consumption rose only six-fold from 1820 to 2001. In Japan, energy use was much more frugal in the 19th century, and per capita consumption rose 20-fold from 1820 to 2001. The composition of world energy consumption has changed drastically since 1820 when 94 per cent came from organic matter. In 2001, mineral fuels accounted for 89 per cent. The input of human energy was very significantly reduced. Hours worked per head of population dropped by 45 per cent in Japan, 40 per cent in the UK and 20 per cent in the USA.

Growth Projections for Leading countries, Regions and the World Economy to 2030

  2.  Table 2 shows absolute levels of GDP, GDP per capita and population for different regions of the world for 1900-2001, with a quantitative assessment of the outlook to 2030. Table 3 shows the rates of growth of population and per capital GDP. The derivation of these estimates is indicated in the notes to the tables. My GDP per capita projections for 2001-30 assume that the pace of development in the "West" will be similar to that in 1990-2001. For China, I assumed a significant slowdown in the per capita growth rate. For the rest of the world, I assumed that performance will be better than in 1990-2001. It is a fairly optimistic set of assumptions, with a per capita growth about twice as fast in the rest of the world than in the West.

Past Relation between World Economic Growth and Energy Consumption

  3.  Tables 4a and 4b compare the growth of world population and GDP with energy use (in terms of both fossil fuels and biomass) from 1820 to 2001. The energy intensity of GDP rose until 1900 (to 0.42 tons of oil equivalent per $1,000) and fell in the course of 20th century (0.27 tons per $1,000 in 2001). Per capita energy use at the world level rose about eight-fold from 1820 to 2001. The US Department of Energy estimated CO2 emissions from fossil fuels from 1820, but did not take account of those from use of biomass, consequently it exaggerates the rate of growth of total emissions since 1820, but understates their level.

The Need to Use PPP rather than Exchange Rate Converters in Assessing GDP Levels and making World Aggregates

  4.  Within most countries, government statisticians provide regular estimates of growth of aggregate output and expenditure in real terms, after correction for price change over time. Virtually all economists, journalists, and politicians regard those constant price measures as key indicators of economic growth and fluctuations.

  The purpose of PPP (purchasing power parity) measures is precisely analogous: to correct for inter-country price differences to permit meaningful comparisons of levels of real output and expenditure. However, many journalists, politicians and some economists don't seem to realise this, and use exchange rates instead to compare levels of real GDP. Thus Japan is frequently cited as having the world's second biggest economy, and China is sometimes considered to have a smaller economy than the UK.

  Table 5 compares levels of GDP and per capita GDP for the world's 10 largest countries. It demonstrates the magnitude of the error which arises in comparisons using exchange rate conversion.

  The exchange rate conversions on the right hand side show much lower levels for the poorer countries (China, India, Russia and Brazil) and somewhat higher levels for the West European countries and Japan relative to the USA than the PPP converters. In the case of China the exchange rate/PPP deviation was very large—purchasing power was more than five times higher than the exchange rate. In India the ratio was more than three times higher, in Russia twice as high and in Brazil more than 50 per cent higher. The big differential for poorer countries is a fairly systematic outcome in such comparisons. For the West European countries and Japan the differential is smaller and has varied above and below parity in the past two decades. The implausibility of exchange rate conversion is clear in historical analysis. The results for 1950 with exchange rate conversion imply a per capita GDP of $85 in China and $172 in India (both in 1990 prices). These levels are much too far below subsistence to be credible.

  The same implausibility arises when exchange rate converters are used in the long-term projections such as those of the International Panel on Climate Change (IPCC), Special Report on Emissions Scenarios, Cambridge University Press, 2000. On p 196, their A1 scenario for per capita GDP growth, 1990-2100, for OECD and Asian countries projected a rise at an annual compound rate of 1.6 and 4.4 per cent respectively. They took the initial 1990 average per capita GDP in OECD countries to be $19,200, and $500 in Asia (p 195, Table 4-6), using exchange rate conversion. Applying the growth rates for their A1 scenario, they projected levels of per capita GDP (in 1990 prices) in the year 2100 of $109,200 in OECD countries, and $71,900 in Asia, a very substantial degree of convergence, where the income gap falls from 38:1 to 1.5:1. However, the outcome would have looked very different if they had started with PPP conversion in their benchmark year 1990. The 1990 per capita level for OECD countries would have been $19,263, and $2,117 for Asia (ex Japan). Applying the same growth rates for 1990-2100, we would then have a per capita level in 2100 of $107,750 for OECD countries and $241,421 for Asia (ex Japan). Thus the Asian countries would have achieved an average income level more than twice that in OECD countries.

Table 1

PROXIMATE AND MEASURABLE DETERMINANTS OF GROWTH SINCE 1820
UKUSA JapanUK USAJapan
  Gross Stock of Machinery and Equipment Per Capita (1990 $)   Gross Stock of Non-Residential Structures Per Capita (1990 $)



1820
9287 na1,0741,094 na
1870334489 94a2,5093,686 593a
19138782,749 3293,21514,696 852
19502,1226,110 1,3813,41217,211 1,929
19736,20310,762 6,4319,58524,366 12,778
200116,08230,600 32,92922,17636,330 57,415
UKUSA JapanUK USAJapan
Primary Energy Consumption Per Capita   (tons of oil equivalent)   Average Years of Education*   Per Person Employed
18200.612.45b 0.202.001.75 1.50
18702.212.45 0.204.443.92 1.50
19133.244.47 0.428.827.86 5.36
19503.145.68 0.5410.6011.2 9.11
19733.938.19 2.9811.6614.58 12.09
20013.948.00 4.1015.4520.21 16.61
UKUSA JapanUK USAJapan
    Land Area Per Capita (hectares)   Exports Per Capita (1990 $)
18201.4848.1 1.235325 na
18701.0023.4 1.1139062 1.5
19130.699.6 0.74862197 33
19500.486.2 0.44781283 42
19730.434.4 0.351,684824 875
20010.413.3 0.305,4472,843 2,696
UKUSA JapanUK USAJapan
Hours Worked Per Head of Population   GDP Per Man Hour (1990 $)
18201,153968 1,5981.491.30 0.42
18701,2511,084 1,5982.552.25 0.46
19131,1811,036 1,2904.315.12 1.08
1950904756 9257.9312.65 2.08
1973750704 98815.9723.72 11.57
2001704770 88328.5936.29 23.42
UKUSA JapanUK USAJapan
  Capital-Output Ratio Machinery and Equipment/GDP   Capital-Output Ratio Non-Residential Structures/GDP
18200.050.07 na0.630.87 na
18700.110.20 0.10a0.791.51 0.59a
19130.180.52 0.240.652.77 0.61
19500.310.64 0.720.491.80 1.00
19730.520.64 0.930.801.46 1.12
20010.801.09 1.591.101.30 2.77
UKUSA JapanUK USAJapan
  Labour Productivity   Total Factor Productivity
(annual average compound growth rates)
1820-70 1.10 1.10 0.180.15-0.15 na
1870-1913 1.22 1.93 2.000.310.36 -0.05c
1913-50 1.66 2.47 1.790.811.62 0.20
1950-73 3.09 2.77 7.751.481.75 5.12
1973-2001 2.10 1.53 2.550.690.54 0.49

(a) 1890; (b) 1850; (c) 1890-1913; *) in equivalent years of primary education.

Source:   Appendix K of Maddison, Monitoring the World Economy (1995, pp 252-55), amended and updated.

Table 2

GDP PER CAPITA (1990 INT $)
19001950 19902001 2030
W Europe2,8934,579 15,96619,25630,503
USA4,0919,561 23,20127,94844,286
*Other WO3,4357,424 17,90221,71842,694
Japan1,1801,921 18,78920,68332,774
"West"2,952 5,64918,781 22,50935,932
E Europe1,4382,111 5,4506,02712,334
f USSR1,2372,841 6,8784,6269,508
L America1,1092,506 5,0535,8118,949
China545439 1,8583,58311,174
India599619 1,3091,9576,103
Other Asia802918 3,0843,99712,465
Africa601894 1,4441,4891,987
"Rest"749 1,0912,713 3,3778,304
World1,262 2,1115,1576,049 11,689


POPULATION (MILLION)
19001950 19902001 2030
W Europe234305 377392392
USA76152 250285358
*Other WO1024 485567
Japan4484 124127121
"West"364 565800 859938
E Europe7187 122121120
f USSR125180 289290295
L America65166 443531666
China400547 1,1351,2751,477
**India285359 8391,0241,414
Other Asia145393 1,0051,2281,426
Africa110227 6278211,319
"Rest"1,200 1,9594,460 5,2906,717
World1,564 2,5245,2606,149 7,655


GDP (BILLION 1990 INT $)
19001950 19902001 2030
W Europe6761,396 6,0337,55011,964
USA3131,456 5,8037,96515,851
*Other WO34180 8621,1901,914
Japan52161 2,3212,6253,975
"West"1,075 3,19215,020 19,33133,704
E Europe102185 6637291,480
f USSR154510 1,9881,3432,805
L America72416 2,2393,0875,960
China218240 2,1094,57016,504
India171222 1,0982,0038,630
Other Asia116361 3,0994,90817,775
Africa66203 9051,2232,622
"Rest"899 2,13712,101 17,86355,776
World1,974 5,33027,122 37,19489,480


Table 3a

GDP PER CAPITA (ANNUAL AVERAGE COMPOUND RATE)
1900-501950-90 1990-20012001-30
W Europe0.923.17 1.721.6
USA1.712.24 1.711.6
*Other WO1.552.22 1.771.6
Japan0.985.87 0.881.6
"West"1.31 3.051.66 1.63
E Europe0.772.40 0.922.5
f USSR1.672.24 -2.902.5
L America1.641.77 1.281.5
China-0.433.67 6.154.0
India0.071.89 3.724.0
Other Asia0.273.08 4.264.0
Africa0.81.21 0.281.0
"Rest"0.76 2.302.01 3.15
World1.03 2.261.462.30


Table 3b

POPULATION (ANNUAL AVERAGE COMPOUND RATE)
1900-501950-90 1990-20012001-30
W Europe0.530.54 0.340.00
USA1.401.25 1.200.79
Other WO*1.771.75 1.250.68
Japan1.290.97 0.24-0.16
"West"0.88 0.870.65 0.30
E Europe0.420.82 -0.05-0.3
f USSR0.741.20 0.040.06
L America1.902.28 1.660.78
China0.631.84 1.060.51
**India0.46 **2.14 1.830.52
Other Asia2.012.38 1.560.52
Africa1.462.57 2.481.65
"Rest"0.65 2.081.56 0.83
World0.96 1.851.430.76

*  Other WO refers to Australia, Canada and N Zealand.

**  1950 population including Bangladesh and Pakistan would have been 444 million, and growth rate 0.89.

Source:   1900-2001 from Maddison (2003), The World Economy: Historical Statistics, OECD, Paris. Population projections 2001-30 derived from the medium variant of UN Population Division, World Population Prospects, 2000 Revision, New York, 2001 and their World Population in 2300, 9 December 2003. The projections of rates of change in per capita GDP are not the result of an econometric exercise, but are based on an analysis of changes in the momentum of growth in different parts of the world economy and the likelihood of their continuation or change, see Maddison (2002) "The West and the Rest in the International Economic Order" in Development is Back, OECD, Paris; this paper is also available on my website www.eco.rug.nl/Maddison/

Table 4a

WORLD ENERGY CONSUMPTION, CARBON EMISSIONS, POPULATION AND GDP, 1820-2001
tons of oilalleged
CO2
Primary Energy equivalent per capmetric
emissions
million
metric
tons
    million tons of oil equivalent
modern
sources

biomass



total


population
million
GDP
billion
1990
int $
per cap
GDP
1990
int $
per 1,000
1990 PPP
Dollars of
GDP
energy
use
metric
tons
tons
of CO2
emissions
per capita
18201212.9 208.2221.11,042 6956670.32 0.210.012
1870147134.5 254.0388.51,272 1,1138750.35 0.310.116
1900534502.4 322.8825.21,564 1,9741,2620.42 0.530.341
1913943735.2 358.21,093.41,791 2,7321,5250.40 0.610.526
19501,6301,624.7 504.92,129.62,524 5,3302,1110.40 0.840.646
19734,6335,368.8 673.86,042.63,917 16,0244,0910.38 1.541.184
19986,6498,427.7 1,062.49,490.15,915 33,8335,7200.28 1.601.124
20006,611 6,071 36,5026,012
20019,071.5 1,093.510,165.06,149 37,1946,0490.27 1.65


Table 4b

ENERGY USE PER $1,000 OF GDP (TONS OF OIL EQUIVALENT, GDP IN 1990 GEARY-KHAMIS DOLLARS)
18201913 19731998 2001
USA1.950.84 0.490.300.29
UK0.360.66 0.290.210.20
Japan0.30 0.260.190.20
China 0.570.270.25
India 0.390.280.27
Other Asia 0.220.170.17
former USSR 0.570.790.70
Africa 0.390.440.42
Latin America 0.200.200.20
World0.320.40 0.380.280.27

Sources for Tables 4a and 4b: Modern sources are coal, oil, natural gas, water and atomic power; biomass is derived from wood, peat, dung, straw and other crop residues. Conversion co-efficients, one metric ton of wood = 0.323 of oil; one metric ton of coal = 0.6458 tons of oil. 1973 and 2001 modern sources and biomass from International Energy Agency, Energy Balances of OECD Countries 2000-01, Paris, 2003; and Energy Balances of Non-OECD Countries 2000-01, Paris, 2003. Modern sources 1870-1950 derived from W S Woytinsky and E S Woytinsky (1953), World Population and Production, Twentieth Century Fund, New York, 1953, p 930, 1820 from B R Mitchell, European Historical Statistics, 1750-1970, Macmillan, London (1975). Biomass 1820-50 assumed to be 0.20 tons per head of population, see V Smil, Energy in World History, Boulder-Oxford (1994), pp 185-7 for rough estimates of biomass back to 1700. My estimate of biomass 1820-1950 is somewhat lower than Smil suggests. In 1973 world per capita supply of biomass was 0.17 and in 1998 0.18 of a ton. World population, GDP and per capita GDP from Maddison, World Economy: Historical Statistics, OECD, Paris 1993 (see also <au0,2>www.eco.rug.nl/<fy10>g<rsMaddison/<xu). CO2 emissions from US Department of Energy, Oak Ridge (cdiac.esd.ornl.gov/trends/emis/); their figures exclude emissions from use of biomass. For further detail on the figures for individual countries, see Maddison, "Growth Accounts, Technological Change, and the Role of Energy in Western Growth", Economia e Energia, Istituto Datini, Prato, 2002 (see also Maddison website).

Table 5a

WORLD'S 10 LARGEST COUNTRIES: COMPARATIVE RANKING OF GDP LEVELS, 1950, 1990 AND 2001, AT CONSTANT 1990 PRICES, USING 1990 GEARY-KHAMIS PPP CONVERTERS AND 1990 EXCHANGE RATES
19501990 20011950 19902001
GDP$ billion, with 1990 PPP conversion   $ billion, with 1990 exchange rate conversion
USA1,4565,803 7,9661,4565,803 7,966
China2402,109 4,57047409 886
Japan1612,321 2,6252062,970 3,358
India2221,098 2,00362306 558
Germany2651,264 1,5373371,606 1,951
France2211,027 1,2582611,216 1,491
UK348945 1,202363985 1,253
Italy165926 1,1011911,069 1,272
Brazil897,447 99058479 638
Russia3151,151 791154565 388
19501990 20011950 19902001
GDP per head  $ with 1990 PPP conversion   $ with 1990 exchange rate conversion
USA9,56123,201 27,9489,56123,201 27,948
China4391,858 3,58385360 695
Japan1,92118,789 20,6832,45824,042 26,466
India6191,309 1,957172365 545
Germany3,88115,929 18,6774,92820,227 23,717
France5,27118,093 21,0926,24421,432 24,985
UK6,93916,430 20,1277,26617,131 20,985
Italy3,50216,313 19,0404,04618,846 21,996
Brazil1,6724,923 5,5701,0773,165 3,588
Russia3,0867,773 5,4351,5153,817 2,669


Table 5b

1990 EXCHANGE RATES, GEARY-KHAMIS PPPs AND ER/PPP RATIOS
    units of national currency per US $ Each Rate

PPP

ER/PPP
USA1.00001.0000 1.0000
China4.78320.9273 5.1580
Japan144.7900185.2700 0.7815
India17.50404.8769 3.5892
Germany1.61602.0520 0.7875
France5.44506.4500 0.8442
UK0.56300.5870 0.9591
Italy1,181.10001,384.1100 0.8656
Brazil68.300044.0000 1.5523
Russia1.05900.5200 2.0365

20 February 2005




 
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