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Industry-level Econometric Estimates of Energy-Capital-Labor Substitution with a Nested CES Production Function

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  • Yazid Dissou

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  • Lilia Karnizova

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  • Qian Sun

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Abstract

Despite 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. This study provides industry-level parameter estimates of two-level constant elasticity of substitution (CES) functions that include capital, labor 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 labor 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 labor, and limited evidence of exogenous technological change. Copyright International Atlantic Economic Society 2015

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  • Yazid Dissou & Lilia Karnizova & Qian Sun, 2015. "Industry-level Econometric Estimates of Energy-Capital-Labor Substitution with a Nested CES Production Function," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(1), pages 107-121, March.
  • Handle: RePEc:kap:atlecj:v:43:y:2015:i:1:p:107-121
    DOI: 10.1007/s11293-014-9443-1
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    8. Havranek, Tomas & Irsova, Zuzana & Gechert, Sebastian & Kolcunova, Dominika, 2019. "Death to the Cobb-Douglas Production Function? A Meta-Analysis of the Capital-Labor Substitution Elasticity," MetaArXiv 6um5g, Center for Open Science.
    9. Frédéric Reynés, 2019. "The Cobb-Douglas function as a flexible function: A new perspective on homogeneous functions through the lens of output elasticities," Sciences Po publications info:hdl:2441/62drs526639, Sciences Po.
    10. Beck, Marisa & Rivers, Nicholas & Wigle, Randall & Yonezawa, Hidemichi, 2015. "Carbon tax and revenue recycling: Impacts on households in British Columbia," Resource and Energy Economics, Elsevier, vol. 41(C), pages 40-69.
    11. Zuzana Smeets Kristkova & Cornelis Gardebroek & Michiel van Dijk & Hans van Meijl, 2017. "The impact of R&D on factor-augmenting technical change – an empirical assessment at the sector level," Economic Systems Research, Taylor & Francis Journals, vol. 29(3), pages 385-417, July.
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    13. M. Chepeliev, 2015. "Econometric estimation of capital-labor substitution elasticities for Ukrainian CGE model," Economy and Forecasting, Valeriy Heyets, issue 2, pages 33-46.
    14. Gechert, Sebastian & Havranek, Tomas & Irsova, Zuzana & Kolcunova, Dominika, 2019. "Death to the Cobb-Douglas Production Function? A Quantitative Survey of the Capital-Labor Substitution Elasticity," EconStor Preprints 203136, ZBW - Leibniz Information Centre for Economics.
    15. Kuralbayeva, Karlygash, 2018. "Unemployment, rural-urban migration and environmental regulation," LSE Research Online Documents on Economics 76561, London School of Economics and Political Science, LSE Library.
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    17. Satoshi Nakano & Kazuhiko Nishimura, 2017. "Structural propagation in a production network with restoring substitution elasticities," Papers 1701.02216, arXiv.org, revised Apr 2018.
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    20. Lagomarsino, Elena, 2020. "Estimating elasticities of substitution with nested CES production functions: Where do we stand?," Energy Economics, Elsevier, vol. 88(C).
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    22. Maolin Cheng, 2019. "A Grey CES Production Function Model and Its Application in Calculating the Contribution Rate of Economic Growth Factors," Complexity, Hindawi, vol. 2019, pages 1-8, April.
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    More about this item

    Keywords

    Energy; Elasticity of substitution; CES function; Industry estimates; E23; Q41; Q43; Q55;
    All these keywords.

    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

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