Abstract
This chapter will present estimates from a translog cost function for both the aggregate economy and industrial economy using the methodologies presented in Chap. 4 and the data described in Chap. 5. The estimated elasticities include the substitution of and demand for energy. We will first discuss the estimated results for the aggregate economy followed by results for the regional aggregate economy and national industrial economy. We will then consider the resulting policy implications of the results and finally a conclusion for this chapter.
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Notes
- 1.
There may be a double counting problem since much of the coal consumed in China is used to generate electricity. However, any double counting problem will become less serious over time because large industrial plants increasingly use more electricity from the outside network with coal used only for their boilers. As for power plants, they mainly use coal to generate electricity and use minimal electricity for their own consumption. We thank the referee for pointing out this issue.
- 2.
Empirically, Gross Domestic Products (GDP) has four components: compensation of employees, depreciation of fixed assets, net tax on production and operating surplus, which account for 40–50%, 13–15%, 13–15% and 20% of GDP, respectively, from 1996 to 2006 for China. The compensation of employees accounts for more than 70% of GDP. This means China invests more and consumes less, while USA consumes more and invests less in terms of GDP composition.
- 3.
One might expect energy and capital to be complements. However, the empirical literature finds evidence both ways. Berndt and Wood (1975), Fuss (1977), and Magnus (1979) find energy and capital to be strong complements. Halvorsen and Ford (1978) and Fuss and Waverman (1975) find ‘mixed results’ on energy-capital substitutability. Griffin and Gregory (1976) find strong evidence of capital-energy substitutability as does Pindyck (1979).
- 4.
For industrial economy, we aggregate gasoline and diesel into oil because both of their consumptions are very small.
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Ma, H., Oxley, L. (2012). Factor Substitution and the Demand for Energy. In: China’s Energy Economy. Lecture Notes in Energy, vol 13. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-25887-9_7
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