Factor Substitutability in Australian Manufacturing with Emphasis on Energy Inputs

Michelle Turnovsk, Michael Folie and Alistair Ulph

The Economic Record, 1982, vol. 58, issue 1, 61-72

Abstract: In this paper a model of the production structure in the aggregate Australian manufacturing sector is estimated, emphasizing the use this sector makes of energy inputs. A translog cost function is estimated with time‐series data for four inputs, capital services, labour services, energy and materials and likewise an energy submodel is estimated for solid fuels, oil, electricity and gas. The substitutabilily and the complementarity relationships between the various factor inputs and between the various fuels are examined: an interesting finding is that capital and energy are substitutes and labour and energy are complements. Factor price elasticities are calculated and turn out to be quite significant. The study concludes that rising energy prices will induce significant shifts in both the mix of fuel inputs and the level of aggregate energy utilization.

Date: 1982
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