Directional nature of technological progress in the petrochemical industry prompting energy marginal substitution

Technological progress does not uniformly benefit all industries or factors' productivity levels. The energy productivity and labour employment situation in the Chinese petrochemical industry have not witnessed substantial improvements in the last decade. The literature has overlooked the importance of recognizing the directional nature of technological progress, which could enable a more strategic approach to economic development, resource allocation, and policy formulation. This study, guided by the core principles of endogenous economic growth theory, aims to uncover the influencing mechanisms and effects of technological progress bias on energy and employment by extending a theoretical model to account for energy, capital, and labour factors. The results reveal: (1) From 2000 to 2021, the relationship between labour, capital, and energy factors in the Chinese petrochemical industry has been predominantly complementary, with technological progress favouring labour-augmenting that is increasing labour productivity; (2) The gross complementarity of production factors leads to labour-augmenting technological progress, ultimately biased towards energy and capital factors; (3) Energy-capital-biased technological progress encourages producers to invest more energy and capital to substitute for labour factors, leading to a limited improvement in energy productivity and a consistent decline in labour employment since 2011. This study further corroborates that without government intervention, it would lead to improper factor allocation in the industry, resulting in market failure. Finally, corresponding policy recommendations are proposed.