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Factor Demand and Substitution in a Developing Country: Energy Use in Mexican Manufacturing

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  • Sterner, Thomas

Abstract

A translog cost function is used to estimate elasticities of substitution and factor demand in a number of Mexican industries (1966-81). The results vary, but factor demand is, on average, quite sensitive and elasticities are of the same order of magnitude as in other studies for both developed and developing countries. This indicates that factor demand does adapt to price changes, even in countries which are dependent on buying technology abroad. It also shows that a policy of heavy subsidies to domestic energy consumption is the main reason for growing energy intensity, thereby casting some light on the allocation costs of such subsidies. Copyright 1989 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Sterner, Thomas, 1989. "Factor Demand and Substitution in a Developing Country: Energy Use in Mexican Manufacturing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(4), pages 723-739.
    • Handle: RePEc:bla:scandj:v:91:y:1989:i:4:p:723-39
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    Cited by:

    1. Bacon, Robert, 1992. "Measuring the possibilities of interfuel substitution," Policy Research Working Paper Series 1031, The World Bank.
    2. Sajid Hussain & Uzma Nisar & Waseem Akram, 2020. "An Analysis of the Cost Structure of Food Industries in Pakistan: An Application of the Translog Cost Function," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 25(2), pages 1-22, July-Dec.
    3. José M. Labeaga & Xavier Labandeira & Xiral López-Otero, 2018. "Energy Tax Reform and Poverty Alleviation in Mexico," Working Papers 1801, Universidade de Vigo, Departamento de Economía Aplicada.
    4. Yau, Ruey & Chen, Guan-Han, 2021. "Assessing energy subsidy policies in a structural macroeconomic model," Energy Economics, Elsevier, vol. 103(C).
    5. Bölük, Gülden & Koç, A. Ali, 2010. "Electricity demand of manufacturing sector in Turkey: A translog cost approach," Energy Economics, Elsevier, vol. 32(3), pages 609-615, May.
    6. Archana Srivastava & Somesh Kumar Mathur, 2013. "Relative Prices, Trade, Technology and Wage Inequality: Evidence from India," Foreign Trade Review, , vol. 48(3), pages 359-381, August.
    7. Gallagher, Kevin P. & Aguayo, Francisco, 2003. "Economic Reform, Energy, and Development: The Case of Mexican Manufacturing," Working Papers 15575, Tufts University, Global Development and Environment Institute.
    8. Salgado Banda Héctor & Bernal Verdugo Lorenzo E., 2007. "Translog Cost Functions: An Application for Mexican Manufacturing," Working Papers 2007-08, Banco de México.

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