ASSESSING A DISAGGREGATED ENERGY INPUT - USING CONFIDENCE-INTERVALS AROUND TRANSLOG ELASTICITY ESTIMATES

The role of energy in the production of manufacturing output has been debated extensively in the literature, particularly its relationship with capital and labor. In an attempt to provide some clarification in this debate, a two-step methodology was used. First, under the assumption of a five-factor production function specification, we distinguished between electric and non-electric energy and assessed each component's relationship with capital and labor. Second, we calculated both the Allen and price elasticities and constructed 95% confidence intervals around these values. Our approach led to the following conclusions: that the disaggregation of the energy input into electric and non-electric energy is justified; that capital and electric energy and capital and non-electric energy are substitutes, while labor and electric energy and labor and non-electric energy are complements in production; and that capital and energy are substitutes, while labor and energy are complements.