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Wide-range estimation of various substitution elasticities for CES production functions at the sectoral level

Michal Antoszewski

Energy Economics, 2019, vol. 83, issue C, 272-289

Abstract: This paper provides a broad range of various substitution elasticity values for sectoral nested constant elasticity of substitution (CES) production functions, estimated through panel data techniques and using the World Input-Output Database (WIOD) as the main data source. Although the related empirical literature has been growing over the recent years, there is still no single study focused on a large-scale estimation of various, both product- and industry-specific, elasticities with the use of an internally consistent database and a common methodology for all the production function nests. This paper constitutes an attempt to fill this gap. The obtained estimates may subsequently be used by computable general equilibrium (CGE) modellers in their applied research – covering fiscal, labour market, trade, energy or environmental topics. Significant heterogeneity in the estimated elasticity values is observed between various industries/products as well as between various nests of the production function. This constitutes a strong argument against the arbitrary use of Leontief and/or Cobb-Douglas specifications in multi-sector CGE models.

Keywords: Substitution elasticity; CES production function; CGE modelling; Energy economics; Panel estimation (search for similar items in EconPapers)
JEL-codes: C23 C55 D57 Q43 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:83:y:2019:i:c:p:272-289

DOI: 10.1016/j.eneco.2019.07.016

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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