Factor demand, technical change and inter-fuel substitution in Africa

The translog production function has been widely used in applied production analysis due to its flexibility and superiority over other functional forms. This study develops a translog production function for a group of African countries. The random effects model is estimated using generalized least squares estimator. The main findings are: first, output in Africa is driven by a more intensive use of petroleum and electricity and to a lesser extent capital, labor and coal; relative to technological progress. Second, African production technology exhibits ‘increasing returns to scale’ suggesting a path towards market entry barriers. Third, technical change is scale-biased and factor augmenting, albeit very slow. Fourth, all energy inputs are substitutes, indicating Africa’s potential to proportionally switch towards cleaner fuels without adversely affecting economic growth. Finally and perhaps more generally, the study reinforces the assertion that imposing restrictions like homotheticity, homogeneity or separability on the production technology is unrealistic and should rather be a testable hypothesis within any applied analysis. In view of the documented findings, relevant implications for Africa are discussed.