Fossil fuels have shaped the European economy since the industrial revolution. In this paper, we analyse the effect of coal and oil on long-run economic growth, exploiting variation at the level of European NUTS-2 and NUTS-3 regions over the last century. We show that an “oil invasion” in the early 1960s turned regional coal abundance from a blessing into a curse, using new detailed data on carboniferous strata as an instrument. Moreover, we show that human capital accumulation was the key mechanism behind this reversal of fortune.
Using a mediation analysis, we establish that nearly all of the negative effect of coal on economic growth was due to an indirect effect of coal that limited educational attainment. However, we also find that regions with a higher density of established urban areas before the onset of the industrial revolution were more capable to adjust to the decline of coal, and some of these actually managed to fully adjust to the “oil invasion”.
Authors Miriam Fritzsche (Humboldt-University Berlin), Nikolaus Wolf (Humboldt-University Berlin)
