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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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    Citations

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    Cited by:

    1. Fabian Stöckl, 2020. "Is Substitutability the New Efficiency? Endogenous Investment in the Elasticity of Substitution between Clean and Dirty Energy," Discussion Papers of DIW Berlin 1886, DIW Berlin, German Institute for Economic Research.
    2. 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.
    3. Hepburn, Cameron & Teytelboym, Alexander & Cohen, Francois, 2018. "Is Natural Capital Really Substitutable?," INET Oxford Working Papers 2018-12, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.

    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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