Brown Bag Seminar Driving over the hill: Car intensity over the course of economic development

Speaker: Ciaran Mac Domhnaill, University of St Andrews

Abstract: This paper examines the number of registered cars in the economy per unit of GDP, or car intensity, as an intrinsic component of car use that may be underlying the peak car phenomenon. I demonstrate that car use per unit of GDP evolves in a hump-shaped pattern over the course of economic development and that this dynamic stems mostly from car intensity. In other words, as GDP per capita increases, car intensity initially increases sharply before reaching a peak and later decreasing. I propose a general equilibrium growth model to argue that structural transformation has a fundamental role to play in producing this relationship between car intensity and GDP per capita. Due to an endogenous evolution in the aggregate elasticity of substitution between a motor vehicle and labour inputs, the calibrated model can account for approximately a fifth of the observed variation in car intensity among a cross-section of countries. In addition, I conduct counterfactual exercises using this model and semi-parametric regression analysis to demonstrate the role of structural transformation in generating a hump shape in intensity as the economy develops. I find that economies that develop later reach a peak level of car intensity at a later stage but that this peak occurs at a lower level than that experienced by countries that shifted away from agriculture earlier.