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Capital-energy substitution and shifts in factor demand: A meta-analysis

  • Koetse, Mark J.
  • de Groot, Henri L.F.
  • Florax, Raymond J.G.M.

This paper presents a meta-analysis of capital-energy substitution elasticities. We distinguish between Morishima elasticities, which measure technological substitution potential, and cross-price elasticities, which measure actual percentage changes in capital demand in response to energy price changes. We estimate a meta-regression model with separate coefficients for the two elasticity samples. The results show that the heterogeneity in both the cross-price and Morishima elasticity samples can to a large extent be explained by study differences in, among others, model specification, data characteristics, region and time period. Controlling for potential sources of misspecification and aggregation bias we subsequently calculate short- and long-run elasticities for different regions and time periods. The resulting elasticities show that technological substitution potential is large, especially in the long run for North America. Despite substantial differences across regions and time periods, the estimated cross-price elasticities suggest capital-energy substitutability without exception.

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 5 (September)
Pages: 2236-2251

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Handle: RePEc:eee:eneeco:v:30:y:2008:i:5:p:2236-2251
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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  1. Kemfert, Claudia, 1998. "Estimated substitution elasticities of a nested CES production function approach for Germany," Energy Economics, Elsevier, vol. 20(3), pages 249-264, June.
  2. Rushdi, Ali Ahmed, 1991. "Economies of scale and factor substitution in electricity supply industry : A case study of south Australia," Energy Economics, Elsevier, vol. 13(3), pages 219-229, July.
  3. Koebel, Bertrand M. & Falk, Martin, 1999. "Curvature conditions and substitution pattern among capital, energy, materials and heterogeneous labour," ZEW Discussion Papers 99-06, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Chang, Kuo-Ping, 1994. "Capital-energy substitution and the multi-level CES production function," Energy Economics, Elsevier, vol. 16(1), pages 22-26, January.
  5. Debertin, David L. & Pagoulatos, Angelos & Aoun, Abdessalem, 1990. "Impacts of technological change on factor substitution between energy and other inputs within US agriculture, 1950-79," Energy Economics, Elsevier, vol. 12(1), pages 2-10, January.
  6. Prywes, Menahem, 1986. "A nested CES approach to capital-energy substitution," Energy Economics, Elsevier, vol. 8(1), pages 22-28, January.
  7. Berndt, Ernst R & Wood, David O, 1981. "Engineering and Econometric Interpretations of Energy-Capital Complementarity: Reply and Further Results," American Economic Review, American Economic Association, vol. 71(5), pages 1105-10, December.
  8. Abay Mulatu & Reyer Gerlagh & Dan Rigby & Ada Wossink, 2009. "Environmental Regulation and Industry Location," Working Papers 2009.2, Fondazione Eni Enrico Mattei.
  9. Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, vol. 43(3), pages 395-419, May.
  10. Ilmakunnas, Pekka & Törmä, Hannu, 1989. "Structural Change of Factor Substitution in Finnish Manufacturing," Discussion Papers 281, The Research Institute of the Finnish Economy.
  11. Dargay, Joyce M, 1983. " The Demand for Energy in Swedish Manufacturing Industries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(1), pages 37-51.
  12. Chennat Gopalakrishnan, 1987. "Energy-Nonenergy Input Substitution in Western U.S. Agriculture: Some Findings," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 133-145.
  13. Kemfert, Claudia & Welsch, Heinz, 2000. "Energy-Capital-Labor Substitution and the Economic Effects of CO2 Abatement: Evidence for Germany," Journal of Policy Modeling, Elsevier, vol. 22(6), pages 641-660, November.
  14. Russell, E Robert, 1975. "Functional Separability and Partial Elasticities of Substitution," Review of Economic Studies, Wiley Blackwell, vol. 42(1), pages 79-85, January.
  15. Gasper A. Garofalo & Devinder M. Malhotra, 1988. "Aggregation of Capital and Its Substitution with Energy," Eastern Economic Journal, Eastern Economic Association, vol. 14(3), pages 251-262, Jul-Sep.
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