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Can Capital-Energy Substitution Foster Economic Growth?

Author

Listed:
  • Itziar Lazkano
  • Linh Pham

Abstract

We study the ease of substitution between energy and other production inputs over time. We first develop a growth model with energy where our general production function allows for a nonconstant elasticity of substitution. Theoretical results show that the ease of substitution between capital and energy increases over time with the energy-capital ratio. Next, using country-level data from 108 countries between 1971 and 2011, we provide empirical evidence for a nonconstant elasticity of substitution between capital and energy. Our results imply that policies that increase the speed of the capital-energy substitution can foster long-run economic growth.

Suggested Citation

  • Itziar Lazkano & Linh Pham, 2016. "Can Capital-Energy Substitution Foster Economic Growth?," Land Economics, University of Wisconsin Press, vol. 92(3), pages 491-514.
  • Handle: RePEc:uwp:landec:v:92:y:2016:i:3:p:491-514
    Note: DOI: 10.3368/le.92.3.491
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    File URL: http://le.uwpress.org/cgi/reprint/92/3/491
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    Cited by:

    1. Lazkano, Itziar & Nøstbakken, Linda & Pelli, Martino, 2017. "From fossil fuels to renewables: The role of electricity storage," European Economic Review, Elsevier, vol. 99(C), pages 113-129.

    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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