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Capital-Energy Substitution Revisted: New Evidence From Micro Data

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  • Sang V Nguyen
  • Mary L Streitwieser

Abstract

We use new micro data for 11,520 plants taken from the Census Bureau=s 1991 Manufacturing Energy Consumption Survey (MECS) and 1991 Annual Survey of Manufactures (ASM) to estimate elasticities of substitution between energy and capital. We found that energy and capital are substitutes. We also found that estimates of Allen elasticities of substitution -- which have been used as a standard measure of substitution -- are sensitive to varying data sets and levels of aggregation. In contrast, estimates of Morishima elasticities of substitution -- which are theoretically superior to the Allen elasticities -- are more robust (except when two-digit level data are used). The results support the views that (i) the Morishima elasticity is a better measure of factor substitution and (ii) micro data provide more accurate elasticity estimates than those obtained from aggregate data. Our findings appear to resolve the long-standing conflict among the estimates reported in the many previous studies regarding energy-capital substitution/complementarity.

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File URL: ftp://ftp2.census.gov/ces/wp/1997/CES-WP-97-04.pdf
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 97-4.

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Date of creation: Apr 1997
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Handle: RePEc:cen:wpaper:97-4

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Keywords: CES; economic; research; micro; data; microdata; chief; economist;

References

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  1. Catherine Morrison, 1993. "Energy and Capital: Further Exploration of E-K Interactions and Economic Performance," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 217-244.
  2. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, vol. 16(3), pages 339-365, August.
  3. Burgess, David F., 1975. "Duality theory and pitfalls in the specification of technologies," Journal of Econometrics, Elsevier, vol. 3(2), pages 105-121, May.
  4. Mark E Doms, 1992. "Estimating Capital Efficiency Schedules Within Production Functions," Working Papers 92-4, Center for Economic Studies, U.S. Census Bureau.
  5. Humphrey, David Burras & Moroney, John R, 1975. "Substitution among Capital, Labor, and Natural Resource Products in American Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 83(1), pages 57-82, February.
  6. Sang V. Nguyen & Stephen H. Andrews, 1989. "The Effect of Energy Aggregation on Energy Elasticities: Some Evidence from U.S. Manufacturing Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 149-156.
  7. Turnovsky, Michelle & Folie, Michael & Ulph, Alistair, 1982. "Factor Substitutability in Australian Manufacturing with Emphasis on Energy Inputs," The Economic Record, The Economic Society of Australia, vol. 58(160), pages 61-72, March.
  8. Wales, Terence J., 1977. "On the flexibility of flexible functional forms : An empirical approach," Journal of Econometrics, Elsevier, vol. 5(2), pages 183-193, March.
  9. Solow, John L, 1987. "The Capital-Energy Complementarity Debate Revisited," American Economic Review, American Economic Association, vol. 77(4), pages 605-14, September.
  10. Anderson, Richard G & Thursby, Jerry G, 1986. "Confidence Intervals for Elasticity Estimators in Translog Models," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 647-56, November.
  11. Apostolakis, Bobby E., 1990. "Energy--capital substitutability/ complementarity : The dichotomy," Energy Economics, Elsevier, vol. 12(1), pages 48-58, January.
  12. Chung, Jae Wan, 1987. "On the Estimation of Factor Substitution in the Translog Model," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 409-17, August.
  13. W. Erwin Diewert, 2003. "Measuring Capital," NBER Working Papers 9526, National Bureau of Economic Research, Inc.
  14. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-88, September.
  15. Zvi Griliches, 1967. "Production Functions in Manufacturing: Some Preliminary Results," NBER Chapters, in: The Theory and Empirical Analysis of Production, pages 275-340 National Bureau of Economic Research, Inc.
  16. Turnovsky, Michelle H L & Donnelly, William A, 1984. "Energy Substitution, Separability, and Technical Progress in the Australian Iron and Steel Industry," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(1), pages 54-63, January.
  17. Griffin, James M, 1981. "Engineering and Econometric Interpretations of Energy-Capital Complementarity: Comment," American Economic Review, American Economic Association, vol. 71(5), pages 1100-1104, December.
  18. Douglas W Dwyer, 1997. "Productivity Races II: The Issue of Capital Measurement," Working Papers 97-3, Center for Economic Studies, U.S. Census Bureau.
  19. Kulatilaka, Nalin, 1985. "Tests on the validity of static equilibrium models," Journal of Econometrics, Elsevier, vol. 28(2), pages 253-268, May.
  20. Pindyck, Robert S & Rotemberg, Julio J, 1983. "Dynamic Factor Demands and the Effects of Energy Price Shocks," American Economic Review, American Economic Association, vol. 73(5), pages 1066-79, December.
  21. Norsworthy, J R & Malmquist, David H, 1983. "Input Measurement and Productivity Growth in Japanese and U.S. Manufacturing," American Economic Review, American Economic Association, vol. 73(5), pages 947-67, December.
  22. Griffin, James M & Gregory, Paul R, 1976. "An Intercountry Translog Model of Energy Substitution Responses," American Economic Review, American Economic Association, vol. 66(5), pages 845-57, December.
  23. Nguyen, Sang V & Reznek, Arnold P, 1993. " Factor Substitution in Small and Large U.S. Manufacturing Establishments: 1977-82," Small Business Economics, Springer, vol. 5(1), pages 37-54, March.
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Cited by:
  1. Giulia BETTIN & Alessia LO TURCO & Daniela MAGGIONI, 2011. "A firm level perspective on migration," Working Papers 360, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  2. Shankar, Bhavani & Piesse, Jenifer & Thirtle, Colin, 2003. "Energy substitutability in transition agriculture: estimates and implications for Hungary," Agricultural Economics, Blackwell, vol. 29(2), pages 181-193, October.

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