Determinants of (de-) materialization of an industrialized small open economy

Abstract

Structural change – the increase in the importance of the service sector in an industrialized economy – and trade relations (imports and exports) are often associated with a reduction in material input and consumption. The production of services is less energy- and material-intensive, and the increase in imports may reduce material consumption because material-intensive products are imported and not produced domestically, thereby reducing materials counted in national statistics. For Direct Material Input (DMI) as well as Domestic Material Consumption (DMC), income is still the main significant determinant in the Austrian economy. While an EKC-type relation with an inverted-U shape relation between income and material consumption is not indicated by the data, total material input as well as consumption clearly exhibit an N-shaped relation. This result suggests that structural change and trade relations may only dampen the still strong contributions of income growth to the constant increase in material consumption. Estimations of material consumption calculated separately for the four main groups of materials (biomass, metals, minerals, fossil fuels) corroborate these results. Biomass use stayed at roughly the same level for the period between 1960 and 2005, while minerals and fossil fuels increased dramatically, contrary to Austrian policy intentions to reduce material consumption to a sustainable level (e.g. “Factor 4”). The results of the paper suggest that a major structural break in the income-material consumption pattern has to take place in order to significantly reduce material consumption and to bring the Austrian economy onto a sustainable development path.