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Capital-Energy Substitution Revisted: New Evidence From Micro Data

April 1997

Working Paper Number:

CES-97-04

Abstract

We use new micro data for 11,520 plants taken from the Census Bureau=s 1991 Manufacturing Energy Consumption Survey (MECS) and 1991 Annual Survey of Manufactures (ASM) to estimate elasticities of substitution between energy and capital. We found that energy and capital are substitutes. We also found that estimates of Allen elasticities of substitution -- which have been used as a standard measure of substitution -- are sensitive to varying data sets and levels of aggregation. In contrast, estimates of Morishima elasticities of substitution -- which are theoretically superior to the Allen elasticities -- are more robust (except when two-digit level data are used). The results support the views that (i) the Morishima elasticity is a better measure of factor substitution and (ii) micro data provide more accurate elasticity estimates than those obtained from aggregate data. Our findings appear to resolve the long-standing conflict among the estimates reported in the many previous studies regarding energy-capital substitution/complementarity.

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Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

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:
demand, estimation, quantity, economist, utilization, econometric, macroeconomic, estimating, aggregate, substitute, expenditure, consumption, elasticity, energy, asset

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:
Annual Survey of Manufactures, Standard Industrial Classification, Cobb-Douglas, Manufacturing Energy Consumption Survey, Auxiliary Establishment Survey

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