Elasticity of substitution is traditionally estimated while ignoring technical and allocative inefficiencies, which could bias the estimates. We estimate elasticity of substitution for Chinese energy-intensive sectors by incorporating these inefficiencies. The results show most of the sectors are low substitutes between input factors and stress important differences among energy-intensive sectors. Concerning the cross-price elasticity for energy, with respect to capital (labor), the sectors are mainly characterized by weak substitutability or complementary. These imply the production structure is quite rigid and capital cannot be so readily used as a substitute for energy.
|Journal||Chinese Journal of Population Resources and Environment|
|Publication status||Published - 2016|