Long-run estimates of interfuel and interfactor elasticities

Chunbo Ma, D.I. Stern

    Research output: Contribution to journalArticle

    10 Citations (Scopus)

    Abstract

    © 2016 Elsevier B.V.
    Meta-analyses of interfuel and capital-energy elasticities of substitution show that elasticity estimates are dependent on the type of data - time series, panel, or cross-section - and the estimators used. Econometric theory suggests that the between estimator might generate the best estimates of long-run elasticities but no existing estimates of elasticities of substitution have used it. Alternatively, Chirinko et al. argued in favor of estimating long-run elasticities of substitution using a long-run difference estimator. We provide estimates of China's interfuel and interfactor elasticities of substitution using the between and long-run difference estimators. To address potential omitted variables bias, we add province level inefficiency and national technological change terms to our regression model. The results show that demand for coal and electricity in China is very inelastic, while demand for diesel and gasoline is elastic. With the exception of gasoline and diesel, there are limited substitution possibilities among the fuels. Substitution possibilities are greater between energy and labor than between energy and capital. The results are quite different to some previous studies for China but coincide well with the patterns found in meta-analyses for long-run estimates of elasticities of substitution.
    Original languageEnglish
    Pages (from-to)114-130
    JournalResource and Energy Economics
    Volume46
    Early online date1 Oct 2016
    DOIs
    Publication statusPublished - Nov 2016

    Fingerprint

    Elasticity
    Elasticity of substitution
    Estimator
    China
    Energy
    Substitution
    Technological change
    Regression model
    Omitted variable bias
    Cross section
    Econometrics
    Time series data
    Inefficiency
    Electricity
    Labor

    Cite this

    @article{0d079f04ad2648fdb68c4e67cf687b1c,
    title = "Long-run estimates of interfuel and interfactor elasticities",
    abstract = "{\circledC} 2016 Elsevier B.V.Meta-analyses of interfuel and capital-energy elasticities of substitution show that elasticity estimates are dependent on the type of data - time series, panel, or cross-section - and the estimators used. Econometric theory suggests that the between estimator might generate the best estimates of long-run elasticities but no existing estimates of elasticities of substitution have used it. Alternatively, Chirinko et al. argued in favor of estimating long-run elasticities of substitution using a long-run difference estimator. We provide estimates of China's interfuel and interfactor elasticities of substitution using the between and long-run difference estimators. To address potential omitted variables bias, we add province level inefficiency and national technological change terms to our regression model. The results show that demand for coal and electricity in China is very inelastic, while demand for diesel and gasoline is elastic. With the exception of gasoline and diesel, there are limited substitution possibilities among the fuels. Substitution possibilities are greater between energy and labor than between energy and capital. The results are quite different to some previous studies for China but coincide well with the patterns found in meta-analyses for long-run estimates of elasticities of substitution.",
    author = "Chunbo Ma and D.I. Stern",
    year = "2016",
    month = "11",
    doi = "10.1016/j.reseneeco.2016.09.003",
    language = "English",
    volume = "46",
    pages = "114--130",
    journal = "Resource and Energy Economics",
    issn = "0928-7655",
    publisher = "Elsevier",

    }

    Long-run estimates of interfuel and interfactor elasticities. / Ma, Chunbo; Stern, D.I.

    In: Resource and Energy Economics, Vol. 46, 11.2016, p. 114-130.

    Research output: Contribution to journalArticle

    TY - JOUR

    T1 - Long-run estimates of interfuel and interfactor elasticities

    AU - Ma, Chunbo

    AU - Stern, D.I.

    PY - 2016/11

    Y1 - 2016/11

    N2 - © 2016 Elsevier B.V.Meta-analyses of interfuel and capital-energy elasticities of substitution show that elasticity estimates are dependent on the type of data - time series, panel, or cross-section - and the estimators used. Econometric theory suggests that the between estimator might generate the best estimates of long-run elasticities but no existing estimates of elasticities of substitution have used it. Alternatively, Chirinko et al. argued in favor of estimating long-run elasticities of substitution using a long-run difference estimator. We provide estimates of China's interfuel and interfactor elasticities of substitution using the between and long-run difference estimators. To address potential omitted variables bias, we add province level inefficiency and national technological change terms to our regression model. The results show that demand for coal and electricity in China is very inelastic, while demand for diesel and gasoline is elastic. With the exception of gasoline and diesel, there are limited substitution possibilities among the fuels. Substitution possibilities are greater between energy and labor than between energy and capital. The results are quite different to some previous studies for China but coincide well with the patterns found in meta-analyses for long-run estimates of elasticities of substitution.

    AB - © 2016 Elsevier B.V.Meta-analyses of interfuel and capital-energy elasticities of substitution show that elasticity estimates are dependent on the type of data - time series, panel, or cross-section - and the estimators used. Econometric theory suggests that the between estimator might generate the best estimates of long-run elasticities but no existing estimates of elasticities of substitution have used it. Alternatively, Chirinko et al. argued in favor of estimating long-run elasticities of substitution using a long-run difference estimator. We provide estimates of China's interfuel and interfactor elasticities of substitution using the between and long-run difference estimators. To address potential omitted variables bias, we add province level inefficiency and national technological change terms to our regression model. The results show that demand for coal and electricity in China is very inelastic, while demand for diesel and gasoline is elastic. With the exception of gasoline and diesel, there are limited substitution possibilities among the fuels. Substitution possibilities are greater between energy and labor than between energy and capital. The results are quite different to some previous studies for China but coincide well with the patterns found in meta-analyses for long-run estimates of elasticities of substitution.

    U2 - 10.1016/j.reseneeco.2016.09.003

    DO - 10.1016/j.reseneeco.2016.09.003

    M3 - Article

    VL - 46

    SP - 114

    EP - 130

    JO - Resource and Energy Economics

    JF - Resource and Energy Economics

    SN - 0928-7655

    ER -