Non-linear technological progress and the substitutability of energy for capital: An application using the translog cost function

David Broadstock

Economics Bulletin, 2010, vol. 30, issue 1, 84-93

Abstract: This paper analyses the production process of three industries over three separate time periods using datasets taken form Berndt and Wood (1975, 1979), Hunt (1984a, 1986) and Norsworthy and Harper (1981). In their initial paper Berndt and Wood failed to explore the alternative options available to them to represent technological progress, a deficiency noted by Hunt (1986) who tested for alternative representations of technology (inter alia) using the Berndt and Wood data. This paper extends this line of reasoning/research by allowing technological progress to take more flexible non-linear forms using a polynomial deterministic trend model. The results reveal that ‘non-linear trend' models are generally preferred to ‘linear trend' or ‘no trend' models hence raising a question over the validity of assumptions used in much previous empirical research. Further the results reveal that the different assumptions lead to different results for the energy-capital elasticity of substitution.

Keywords: Translog; non-linear technological progress; elasticity of substitution (search for similar items in EconPapers)
JEL-codes: D2 Q4 (search for similar items in EconPapers)
Date: 2010-01-11
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Citations: View citations in EconPapers (2)

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