Energy and the non-energy inputs substitution: evidence for Italy, Portugal and Spain

Abstract

The factor demand is modeled for Italy, Portugal and Spain. We estimated a translog cost function with capital, labor and energy over the 1980-1996 period. Our objective regarding energy as input was two-fold: on the one hand, to verify its incorporation as a productive factor, and, on the other, to observe its degree of substitutability with the other classical factors, given the high level of energy dependency of these countries. Using a separability test and confidence intervals for the Allen and price elasticities, our estimates confirmed both the non-separability of the energy input and the existence of consistent substitution between energy and labor only for Italy.