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Wide-range estimation of various substitution elasticities for CES production functions at the sectoral level

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  • Antoszewski, Michał

Abstract

This paper provides a broad range of various substitution elasticity values for sectoral nested constant elasticity of substitution (CES) production functions, estimated through panel data techniques and using the World Input-Output Database (WIOD) as the main data source. Although the related empirical literature has been growing over the recent years, there is still no single study focused on a large-scale estimation of various, both product- and industry-specific, elasticities with the use of an internally consistent database and a common methodology for all the production function nests. This paper constitutes an attempt to fill this gap. The obtained estimates may subsequently be used by computable general equilibrium (CGE) modellers in their applied research – covering fiscal, labour market, trade, energy or environmental topics. Significant heterogeneity in the estimated elasticity values is observed between various industries/products as well as between various nests of the production function. This constitutes a strong argument against the arbitrary use of Leontief and/or Cobb-Douglas specifications in multi-sector CGE models.

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  • Antoszewski, Michał, 2019. "Wide-range estimation of various substitution elasticities for CES production functions at the sectoral level," Energy Economics, Elsevier, vol. 83(C), pages 272-289.
    • Handle: RePEc:eee:eneeco:v:83:y:2019:i:c:p:272-289
    DOI: 10.1016/j.eneco.2019.07.016
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    References listed on IDEAS

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    2. Hinterlang, Natascha & Jäger, Marius & Stähler, Nikolai & Strobel, Johannes, 2024. "On curbing the rise in energy prices: An examination of different mitigation approaches," Discussion Papers 09/2024, Deutsche Bundesbank.
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    6. An, Kangxin & Wang, Can & Cai, Wenjia, 2023. "Low-carbon technology diffusion and economic growth of China: an evolutionary general equilibrium framework," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 253-263.
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    9. Lagomarsino, Elena, 2020. "Estimating elasticities of substitution with nested CES production functions: Where do we stand?," Energy Economics, Elsevier, vol. 88(C).
    10. Zhu, Xuehong & Zeng, Anqi & Zhong, Meirui & Huang, Jianbai, 2021. "Elasticity of substitution and biased technical change in the CES production function for China's metal-intensive industries," Resources Policy, Elsevier, vol. 73(C).
    11. Ernst, Anne & Hinterlang, Natascha & Mahle, Alexander & Stähler, Nikolai, 2023. "Carbon pricing, border adjustment and climate clubs: Options for international cooperation," Journal of International Economics, Elsevier, vol. 144(C).
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    More about this item

    Keywords

    Substitution elasticity; CES production function; CGE modelling; Energy economics; Panel estimation;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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