Energy Substitutability in Canadian Manufacturing: Econometric Estimation with Bootstrap Confidence Intervals

Yazid Dissou () and Reza Ghazal ()
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Reza Ghazal: Department of Economics, University of Ottawa

No 0809E, Working Papers from University of Ottawa, Department of Economics

Abstract: This study provides estimates of the price and Morishima substitution elasticities between energy and non-energy inputs in two Canadian energy-intensive manufacturing industries: Primary Metal and Cement. The elasticities are estimated using annual industry-level KLEM data (1961- 2003) and relying on two flexible functional forms: the Translog and the Symmetric Generalized McFadden (SGM) cost functions. In addition to the point estimates, the confidence intervals of the elasticities are computed using single- and double-bootstrap resampling techniques. For both industries, the estimation results suggest that capital, labour, material and energy are pairwise substitutes and that energy is the most substitutable input. However, the low magnitudes of the estimated elasticities do not seem to offer great flexibility to these industries to adapt to high increases in energy prices.

Keywords: Energy; Elasticity of substitution; Translog cost function; Symmetric Generalized McFadden (SGM) Cost Function; Single Bootstrap; Double Bootstrap. (search for similar items in EconPapers)
JEL-codes: C30 Q4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:ott:wpaper:0809e

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