Electricity, technological change and productivity in Swedish industry, 1890 1990.

Electricity and electrotechnical industry have taken a central position in Swedish industrial development ever since the breakthrough of the high-voltage technique in the 1890s. Some reasons for the importance of electricity are quite obvious. Due to her natural resources, Sweden had at an early stage developed many energy intensive industries such as iron and steel works and pulp and paper mills. She lacked, however, deposits of fossil fuels while the supply of water power was abundant. Hence, early on there was a strong stimulus to develop a system of generation and transmission of electrical power as well as to invest in electrotechnical equipment. Similarly, there was a strong stimulus to the development of a domestic electrotechnical engineering industry. This industry became a backbone of the more sophisticated manufacturing that spurred Swedish industrialization from the 1890s onwards.

Economic growth and the transition from traditional to modern energy in Sweden

We examine the role of substitution from traditional to modern energy carriers and of differential rates of innovation in the use of each of these in economic growth in Sweden from 1850 to 1950. We use a simple growth model with a nested CES production function and exogenous factor-augmenting technological change and carry out a counterfactual simulation based on the econometric results. Even though the rate of technical change was higher for modern energy, innovation in the use of traditional energy carriers contributed more to growth between 1850 and 1890, since the cost share of traditional energy was so much larger than that of modern energy in that period. However, after 1890 we find that modern energy contributed much more to economic growth than traditional energy, but, increasingly, labor-augmenting technological change became the most important single driver of growth