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Non-linear technological progress and the substitutability of energy for capital: An application using the translog cost function

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  • David Clive Broadstock

    (Surrey Energy Economics Centre)

Abstract

This paper analyses the production process of three industries over three separate time periods using datasets taken form Berndt and Wood (1975, 1979), Hunt (1984a, 1986) and Norsworthy and Harper (1981). In their initial paper Berndt and Wood failed to explore the alternative options available to them to represent technological progress, a deficiency noted by Hunt (1986) who tested for alternative representations of technology (inter alia) using the Berndt and Wood data. This paper extends this line of reasoning/research by allowing technological progress to take more flexible non-linear forms using a polynomial deterministic trend model. The results reveal that ‘non-linear trend' models are generally preferred to ‘linear trend' or ‘no trend' models hence raising a question over the validity of assumptions used in much previous empirical research. Further the results reveal that the different assumptions lead to different results for the energy-capital elasticity of substitution.

Suggested Citation

  • 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.
    • Handle: RePEc:ebl:ecbull:eb-09-00435
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    References listed on IDEAS

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    1. Charles Blackorby & R. Robert Russell, 1981. "The Morishima Elasticity of Substitution; Symmetry, Constancy, Separability, and its Relationship to the Hicks and Allen Elasticities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(1), pages 147-158.
    2. Berndt, Ernst R & Wood, David O, 1979. "Engineering and Econometric Interpretations of Energy-Capital Complementarity," American Economic Review, American Economic Association, vol. 69(3), pages 342-354, June.
    3. Thompson, Henry, 2006. "The applied theory of energy substitution in production," Energy Economics, Elsevier, vol. 28(4), pages 410-425, July.
    4. Manuel Frondel & Christoph M. Schmidt, 2002. "The Capital-Energy Controversy: An Artifact of Cost Shares?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 53-79.
    5. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    6. repec:bla:ecorec:v:58:y:1982:i:160:p:61-72 is not listed on IDEAS
    7. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-268, August.
    8. 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.
    9. 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.
    10. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
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    Cited by:

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    More about this item

    Keywords

    Translog; non-linear technological progress; elasticity of substitution;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • D2 - Microeconomics - - Production and Organizations

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