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Factor Substitutability in Australian Manufacturing with Emphasis on Energy Inputs

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  • MICHELLE TURNOVSK
  • MICHAEL FOLIE
  • ALISTAIR ULPH

Abstract

In this paper a model of the production structure in the aggregate Australian manufacturing sector is estimated, emphasizing the use this sector makes of energy inputs. A translog cost function is estimated with time‐series data for four inputs, capital services, labour services, energy and materials and likewise an energy submodel is estimated for solid fuels, oil, electricity and gas. The substitutabilily and the complementarity relationships between the various factor inputs and between the various fuels are examined: an interesting finding is that capital and energy are substitutes and labour and energy are complements. Factor price elasticities are calculated and turn out to be quite significant. The study concludes that rising energy prices will induce significant shifts in both the mix of fuel inputs and the level of aggregate energy utilization.

Suggested Citation

  • Michelle Turnovsk & Michael Folie & Alistair Ulph, 1982. "Factor Substitutability in Australian Manufacturing with Emphasis on Energy Inputs," The Economic Record, The Economic Society of Australia, vol. 58(1), pages 61-72, March.
    • Handle: RePEc:bla:ecorec:v:58:y:1982:i:1:p:61-72
    DOI: 10.1111/j.1475-4932.1982.tb00349.x
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    References listed on IDEAS

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    Cited by:

    1. Thomas Bue Bjørner & Henrik Holm Jensen, 2002. "Interfuel Substitution within Industrial Companies: An Analysis Based on Panel Data at Company Level," The Energy Journal, , vol. 23(2), pages 27-50, April.
    2. David Clive Broadstock, 2010. "Non-linear technological progress and the substitutability of energy for capital: An application using the translog cost function," Economics Bulletin, AccessEcon, vol. 30(1), pages 84-93.
    3. Alan D. Woodland, 1993. "A Micro-Econometric Analysis of the Industrial Demand for Energy in NSW," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 57-90.
    4. Truong P. Truong, 1985. "Inter‐Fuel and Inter‐Factor Substitution in NSW Manufacturing Industry," The Economic Record, The Economic Society of Australia, vol. 61(3), pages 644-653, September.
    5. 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.
    6. Shahiduzzaman, M.D. & Alam, Khorshed, 2014. "Interfuel substitution in Australia: a way forward to achieve environmental sustainability," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 58(1), January.
    7. Sang V Nguyen & Mary L Streitwieser, 1997. "Capital-Energy Substitution Revisted: New Evidence From Micro Data," Working Papers 97-4, Center for Economic Studies, U.S. Census Bureau.
    8. Jean-Guy Devezeaux de Lavergne, 1990. "Chocs pétroliers et industrie : apports récents de l'économétrie de la production," Économie et Prévision, Programme National Persée, vol. 96(5), pages 21-32.
    9. Al-Mutairi, Naief & Burney, Nadeem A., 2002. "Factor substitution, and economies of scale and utilisation in Kuwait's crude oil industry," Energy Economics, Elsevier, vol. 24(4), pages 337-354, July.
    10. Lagomarsino, Elena, 2020. "Estimating elasticities of substitution with nested CES production functions: Where do we stand?," Energy Economics, Elsevier, vol. 88(C).
    11. Burney, Nadeem A. & Al-Matrouk, Faisal T., 1996. "Energy conservation in electricity generation: A case study of the electricity and water industry in Kuwait," Energy Economics, Elsevier, vol. 18(1-2), pages 69-79, April.
    12. Koetse, Mark J. & de Groot, Henri L.F. & Florax, Raymond J.G.M., 2008. "Capital-energy substitution and shifts in factor demand: A meta-analysis," Energy Economics, Elsevier, vol. 30(5), pages 2236-2251, September.
    13. Elena Lagomarsino & Karen Turner, 2017. "Is the production function Translog or CES? An empirical illustration using UK data," Working Papers 1713, University of Strathclyde Business School, Department of Economics.
    14. repec:ebl:ecbull:v:30:y:2010:i:1:p:84-93 is not listed on IDEAS
    15. Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2002. "Allocative inefficiency and the capital-energy controversy," Energy Economics, Elsevier, vol. 24(4), pages 305-318, July.
    16. Suho Bae, 2009. "The responses of manufacturing businesses to geographical differences in electricity prices," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(2), pages 453-472, June.

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