Abstract

We study the ease of substitution between energy and other production inputs over time. We first develop a growth model with energy where our general production function allows for a nonconstant elasticity of substitution. Theoretical results show that the ease of substitution between capital and energy increases over time with the energy-capital ratio. Next, using country-level data from 108 countries between 1971 and 2011, we provide empirical evidence for a nonconstant elasticity of substitution between capital and energy. Our results imply that policies that increase the speed of the capital-energy substitution can foster long-run economic growth. (JEL O11, Q43)

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Additional Information

ISSN
1543-8325
Print ISSN
0023-7639
Pages
pp. 491-514
Launched on MUSE
2016-07-07
Open Access
No
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