Abstract
We study the ease of substitution between energy and other production inputs over time. We first develop a growth model with energy where our general production function allows for a nonconstant elasticity of substitution. Theoretical results show that the ease of substitution between capital and energy increases over time with the energy-capital ratio. Next, using country-level data from 108 countries between 1971 and 2011, we provide empirical evidence for a nonconstant elasticity of substitution between capital and energy. Our results imply that policies that increase the speed of the capital-energy substitution can foster long-run economic growth. (JEL O11, Q43)
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In this issue
Jump to section
- Article
- Abstract
- I. INTRODUCTION
- II. A SOLOW GROWTH MODEL WITH VES
- III. DATA
- IV. IDENTIFICATION STRATEGY AND TESTABLE HYPOTHESES
- V. EMPIRICAL RESULTS
- Capital-Energy VES and Economic Progress
- Capital-Energy VES and Environmental Performance
- VI. CONCLUSIONS
- Acknowledgments
- APPENDIX A: VES BETWEEN ENERGY AND CAPITAL
- APPENDIX B: THE SHARES OF CAPITAL, ENERGY, AND LABOR IN A THREE-INPUT VES PRODUCTION FUNCTION
- APPENDIX C: CLASSIFICATIONS OF COUNTRIES
- APPENDIX D: PREBOOTSTRAPPING ESTIMATIONS
- APPENDIX E: ESTIMATIONS OF FULL SPECIFICATIONS WITHOUT RESTRICTIONS ON b1
- Footnotes
- References
- Figures & Data
- Info & Metrics
- References
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