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Estimating Energy Substitution Parameters in GTAP-E

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  • O'Reilly, Rohan
  • Humphreys, Lee
  • Prendiville, Siobhan

Abstract

The production structure of GTAP-E includes an energy and capital composite alongside other factors of production. Both the elasticity of substitution between capital and energy and the elasticities of substitution between different fuel sources are therefore highly important to the output of the model. However, they are by default set to the same value across all sectors and countries. This paper uses OECD panel data from 2005-2016 to estimate elasticities for capital-energy substitution and substitution between the fuel commodities included in the GTAP-E 7 database. Estimates are produced over 32 countries, and for capital-energy substitution over 16 sectors. These estimated parameters are then used in an FTA model, and the results are compared with both the default GTAP-E parameters and less specific estimated values from existing literature. This allows us to determine the magnitude of impact on model output from using statistically estimated parameters, and from using parameters disaggregated by country and sector.

Suggested Citation

  • O'Reilly, Rohan & Humphreys, Lee & Prendiville, Siobhan, 2022. "Estimating Energy Substitution Parameters in GTAP-E," Conference papers 333429, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333429
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    File URL: https://ageconsearch.umn.edu/record/333429/files/11312.pdf
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    References listed on IDEAS

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    1. Valeria Costantini & Elena Paglialunga, 2014. "Elasticity of substitution in capital-energy relationships: how central is a sector-based panel estimation approach?," SEEDS Working Papers 1314, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised May 2014.
    2. David I. Stern, 2012. "Interfuel Substitution: A Meta‐Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 307-331, April.
    3. Peter Horvát & Colin Webb, 2020. "The OECD STAN Database for industrial analysis: Sources and methods," OECD Science, Technology and Industry Working Papers 2020/10, OECD Publishing.
    4. Azusa OKAGAWA & Kanemi BAN, 2008. "Estimation of substitution elasticities for CGE models," Discussion Papers in Economics and Business 08-16, Osaka University, Graduate School of Economics.
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