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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 C. Broadstock

    (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

Abstract

This paper analyses the production process of four industries over four separate time periods using datasets taken form Berndt and Wood (1975, 1979), Hunt (1984a, 1986), Norsworthy and Harper (1981) and Jorgensen and Stiroh (2000). 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 both deterministic and stochastic trend models. 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 C. Broadstock, 2008. "Non-linear technological progress and the substitutability of energy for capital: an application using the translog cost function," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 120, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
    • Handle: RePEc:sur:seedps:120
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    File URL: https://repec.som.surrey.ac.uk/seeds/SEEDS120.pdf
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. repec:bla:ecorec:v:58:y:1982:i:160:p:61-72 is not listed on IDEAS
    4. 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.
    5. 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.
    6. Thompson, Henry, 2006. "The applied theory of energy substitution in production," Energy Economics, Elsevier, vol. 28(4), pages 410-425, July.
    7. 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.
    8. 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.
    9. 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.
    10. Hirofumi Uzawa, 1962. "Production Functions with Constant Elasticities of Substitution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(4), pages 291-299.
    11. 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.
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    Cited by:

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    3. Adetutu, Morakinyo O., 2014. "Energy efficiency and capital-energy substitutability: Evidence from four OPEC countries," Applied Energy, Elsevier, vol. 119(C), pages 363-370.
    4. Bardazzi, Rossella & Oropallo, Filippo & Pazienza, Maria Grazia, 2015. "Do manufacturing firms react to energy prices? Evidence from Italy," Energy Economics, Elsevier, vol. 49(C), pages 168-181.

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    More about this item

    Keywords

    Translog; energy-capital substitution; productivity;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other

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