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Aggregation of Capital and Its Substitution with Energy

Listed author(s):
  • Gasper A. Garofalo
  • Devinder M. Malhotra
Registered author(s):

    Controversy continues over the question of whether capital and energy are substitutes or complements. The authors find that the answer to the question partly depends on the aggregation of building capital and machinery capital into an aggregate input called capital. The authors' empirical results reject this aggregation. When building and machinery capital are treated as separate inputs, they find that machinery capital and energy are substitutes, while building capital and energy are complements. For policy purposes, this result implies that a rise in the price of energy will reduce building capital formation, while it will increase machinery capital formation.

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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume14/V14N3P251_262.pdf
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    Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

    Volume (Year): 14 (1988)
    Issue (Month): 3 (Jul-Sep)
    Pages: 251-262

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    Handle: RePEc:eej:eeconj:v:14:y:1988:i:3:p:251-262
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    c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA

    Phone: (201) 684-7346
    Web page: https://www.quinnipiac.edu/eea/
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    1. Binswanger, Hans P, 1974. "The Measurement of Technical Change Biases with Many Factors of Production," American Economic Review, American Economic Association, vol. 64(6), pages 964-976, December.
    2. Robert M. Solow, 1955. "The Production function and the Theory of Capital," Review of Economic Studies, Oxford University Press, vol. 23(2), pages 101-108.
    3. Joan Robinson, 1953. "The Production Function and the Theory of Capital," Review of Economic Studies, Oxford University Press, vol. 21(2), pages 81-106.
    4. Murray Brown, 1980. "The Measurement of Capital Aggregates: A Postreswitching Problem," NBER Chapters,in: The Measurement of Capital, pages 377-432 National Bureau of Economic Research, Inc.
    5. Paul A. Samuelson, 1962. "Parable and Realism in Capital Theory: The Surrogate Production Function," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 193-206.
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