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Energy Substitutability in Canadian Manufacturing Econometric Estimation with Bootstrap Confidence Intervals

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 Studentized 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 flex

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Efficiency; Natural Gas – Markets and Prices; Electricity – Markets and Prices

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q55 - Environmental Economics: Technological Innovation
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Energy, Elasticity of substitution, Translog Cost Function, Symmetric Generalized McFadden (SGM) Cost Function, Double Bootstrap

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-6


Published in Volume 31, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.