Effects of technical and allocative inefficiencies on energy and nonenergy elasticities: an analysis of energy-intensive industries in China |
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| Authors: | Donglan Zha Anil Savio Kavuri |
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| Institution: | 1. College of Economics and Management, Nanjing University of Aeronautics and Astronautics, Nanjing, China;2. Energy Soft Science Center, Nanjing University of Aeronautics and Astronautics, Nanjing, China;3. Crawford School of Public Policy, Australian National University, Canberra, Australia |
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| Abstract: | Elasticity of substitution is traditionally estimated while ignoring technical and allocative inefficiencies, which could bias the estimates. We estimate elasticity of substitution for Chinese energy-intensive sectors by incorporating these inefficiencies. The results show most of the sectors are low substitutes between input factors and stress important differences among energy-intensive sectors. Concerning the cross-price elasticity for energy, with respect to capital (labor), the sectors are mainly characterized by weak substitutability or complementary. These imply the production structure is quite rigid and capital cannot be so readily used as a substitute for energy. |
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| Keywords: | Elasticities of substitution technical and allocative inefficiencies energy-intensive sectors |
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