Industry-level Econometric Estimates of Energy-capital-labour Substitution with a Nested CES Production Function
AbstractDespite substantial interest in the role of energy in the economy, the degree of substitutability between energy and other production inputs, and the way energy should be included in the production function remain unresolved issues. Our study provides industry-level parameter estimates of two-level constant elasticity of substitution (CES) functions that include capital, labour and energy inputs and allow for technological change for Canada. In contrast to many existing studies, we do not impose prior restrictions on the order of input nesting, and we report the estimates for three possible specifications. We find that a nested production structure which first combines labour and energy into a composite good that is then combined with capital, fits the Canadian data best, in terms of respecting the restrictions imposed by cost minimization. We also find rather low elasticities of substitution between capital and labour, and limited evidence of exogenous technological change.
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Bibliographic InfoPaper provided by University of Ottawa, Department of Economics in its series Working Papers with number 1214E.
Length: 25 pages
Date of creation: 2012
Date of revision:
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More information through EDIRC
energy; elasticity of substitution; CES function; industry estimates;
Find related papers by JEL classification:
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
- NEP-EFF-2012-11-11 (Efficiency & Productivity)
- NEP-ENE-2012-11-11 (Energy Economics)
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