Energy Use to GDP

It is widely acknowledged in the economics literature that in order for developing countries to "catch up" to the West that they must develop industry and manufacturing of some sort. In order to do this there must be sufficient energy available at an affordable cost. However, the fact that there is less innovation in the developing world makes it more difficult to innovate within the energy sector to produce cheaper energy.

Figure 1: GDP per unit of energy use.
Source: World Bank and Chase DeHan

Figure 1 depicts the GDP to energy cost ratio ($PPP) on the vertical axis, with year on the horizontal axis for each income quintile. What is immediately obvious is that the wealthier a country is, the more income (GDP) they are able to generate for each dollar of energy. It is also interesting to note that the income groups in the middle (lower-middle, middle, and upper-middle) are roughly close to each other while high income countries are significantly higher, while low income countries are significantly lower; all income groups are showing increased efficiencies as shown by the increasing trend over time. My interpretation of this is that the wealthy countries have been able to invest in the newer, more energy efficient technologies, those below are still using yesterday's technologies, while the poorest are relying on severely outdated, inefficient energy sources. This "trickling" of innovations is typical of many other industries where the highest level innovations are occurring in the high income countries while everyone else has to wait for the technology to be proven.

The part that is personally troubling to me is that the poorest countries have the highest cost of energy use, which is what they need in order to develop. It is unfortunate that we, as Americans, are unable to assist the developing countries to get, in the word of Jeffrey Sachs, "their foot on the first rung of the development ladder" to allow for successful development. These countries need cheap energy in order to become competitive on the world market; without it, there is no way to take advantage of the low-cost labor as there are plenty of other countries with cheap energy and cheap labor. This energy issue is one of the most important in bringing the least developed countries (LDC) out of extreme poverty where there is a struggle for daily subsistence. Bringing cheap energy to the LDCs may not bring prosperity, but should alleviate pain.