Capital-Energy Substitution and Shifts in Factor Demand: A Meta-Analysis

By Mark J. Koetse, H. D. Groot, R. J. Florax. 2008

268 citations recorded by the source corpus.

This paper presents a meta-analysis of capital-energy substitution elasticities. We distinguish between Morishima elasticities, which measure technological substitution potential, and cross-price elasticities, which measure actual percentage changes in capital demand in response to energy price changes. We estimate a meta-regression model with separate coefficients for the two elasticity samples. The results show that the heterogeneity in both the cross-price and Morishima elasticity samples can to a large extent be explained by study differences in, among others, model specification, data characteristics, region and time period. Controlling for potential sources of misspecification and aggregation bias we subsequently calculate short- and long-run elasticities for different regions and time periods. The resulting elasticities show that technological substitution potential is large, especially in the long run for North America. Despite substantial differences across regions and time periods, the estimated cross-price elasticities suggest capital-energy substitutability without exception.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/cfc6f68db0ed4433143fce8d8461db1280f0d1ef

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Citations in the corpus

The impact of green innovation on energy intensity: An empirical analysis for 14 industrial sectors in OECD countries (2018, background): “Substitution elasticities found in the (extensive) literature can vary both in signs and in magnitude, depending on methodological choices on the number of inputs considered as well as the input used as numeraire (Koetse et al., 2008): there seems to be no clear consensus on complementarity/substitu”
Energy efficiency and economy-wide rebound effects: A review of the evidence and its implications (2021, background): “These results are sensitive to the elasticity of substitution between energy and other inputs (easier substitution leads to larger rebound), but the magnitude of this elasticity is uncertain [55,92].”
Environmental and climate innovation: Limitations, policies and prices (2013, background): “According to reviews of econometric studies of aggregate production functions by Koetse et al. (2008), some 75% of the estimates suggest that energy and capital are either complements or weak substitutes.”
Energy and Economic Growth: The Stylized Facts (2014, background): “In reality the elasticity of substitution is greater than zero but less than unity (Koetse et al., 2008; Stern and Kander, 2012) and there are substantial differences in the quality of energy used as described below.”
The Role of Energy in the Industrial Revolution and Modern Economic Growth (2012, background): “Third, empirical evidence suggests that the elasticity of substitution between capital and energy is less than one (Koetse et al., 2008).”
The role of energy in economic growth (2011, unknown): “…between capital and energy is less than unity.70 Thermodynamic limits to substitution can be easily identified for individual processes but determining such limits for more complex technologies is difficult.71,72 It might be argued that standard production functions can account for mass…”
The Use (and Abuse) of Meta-Analysis in Environmental and Natural Resource Economics: An Assessment (2009, unknown): “…outcome (aircraft noise levels), X are characteristics of the set of objects affected by P in order to determine the outcome 28 Monte Carlo studies by Koetse et al. (2005, 2007a) suggest that including dummy variables for primary model specification can correct for omitted variable bias, but not…”
Does more energy consumption support economic growth in net energy-importing countries? (2017, background): “However, to date, no common ground has been reached (Hudson and Jorgenson, 1974; Iqbal, 1986; Apostolakis, 1990; Thompson and Taylor, 1995; Ebohon, 1996; Frondel and Schmidt, 2002; Koetse et al., 2008).”
Validating Energy-Oriented CGE Models (2009, background): “1,16 it is clear that if energy demand is price responsive, overall 14 Koetse et al. (2008) also provide a meta-analysis for these estimates.”
Productive energy use and economic growth: Energy, physical and human capital relationships (2015, background): “In this sense, while some authors such as Bentzen (2004), Koetse et al. (2008), Pindyck (1979), and Truong (1985) find evidence that supports the hypothesis of substitutability between energy and capital, other authors such as Anderson (1981), Fuss (1977), and Prywes (1986) refute it.”
Interfuel Substitution: A Meta-Analysis (2012, unknown): “1 Koetse et al.’s (2008) meta-analysis finds a mean value of the Morishima elasticity of substitution between capital and energy for a change in the price of energy of 0.”