What Is the Connection between Energy and Economic Growth?

Economic growth occurs when a nation allows its citizens to engage in activities that increase the livelihood of all citizens. Energy and economic growth are two items in an economy that have a symbiotic relationship. Without energy, economic growth may limp along; that is why the Industrial Revolution played such an important role in history. Energy encourages economic growth as it allows for more efficient production and increases in technological development, both of which lead to better production output. In short, energy and economic growth allow companies to blanket a market with goods that can ultimately grow an economy from the inside out.

Wind and solar power were the dominant energy sources of the 13th century. Those living in these eras struggled to produce goods on a large scale that would benefit many individuals. In short, the goods produced from energy and economic growth were heavily localized to the immediate market. Not until the Industrial Revolution and the discovery of oil as a new energy source did many economies expand and grow rapidly. The continued use of oil and other natural energy sources — such as natural gas or propane — helped economic growth blanket the world.

Efficient production occurs when a business or individual can use resources without increasing waste. For example, a company needs six trees to create three country-style curios. New sources of energy, however, allow the company to use six trees to create five country-style curios due to the better use of materials and added machinery. Hence, energy and economic growth go hand in hand as new ways to produce the same goods result in a more efficient use of materials in a market. Machines that require energy often need sufficient power from external sources in order to efficiently use resources.

Technology is often the result of new energy and economic growth prospects. This principle first came about during the Industrial Revolution. Machinery soon took the place of hand labor, horses, and other manual processes. Economies in the current marketplace are very similar in this regard. New technology — in terms of computers and other digital equipment — allow companies to expand at an accelerated rate. Individuals typically benefit along with businesses due to energy and economic growth.

Finding new ways to increase production output is often a goal for businesses. The ability to do things in new ways is what drives innovation. Without energy and economic growth, an economy can quickly grow stagnant and suffer losses. Hence, economies with insufficient energy sources are often those that struggle to maintain dominance in a market.