The energy-capital-labor substitution relationship of iron and steel industry in China

Abstract

Abstract: A Morishima Elasticity of Substitution (MES) model of iron and steel industry is established based on translog production cost function. The spatial panel data of iron and steel industry in China from 1985 to 2006 are adopted. Energy, capital, and labor are main production factors in the model. The substitution elasticity is analyzed. The results are as follows: Self-Price Elasticity (SPE) of energy, capital, and labor is less than zero; SPE of capital is the smallest; Cross-Price Elasticity (CPE) and Morishima substitution elasticity is greater than zero. The results have proved the substitution relationship between energy and capital/labor, and energy could effectively substitute for labor and capital; however the substitution degree of labor and capital for energy is low. Therefore, it could stimulate the enthusiasm of enterprises to conserve energy, and increase investment in energy-saving technologies in order to improve energy efficiency by raising energy prices and the level of taxation.

Key words: iron and steel industry, energy, MES model, substitution elasticity

CLC Number:

F426

Dong Huizhong, Yan Xiuxia, Tao Jiange. The energy-capital-labor substitution relationship of iron and steel industry in China[J]. Science Research Management, 2012, (8): 120-127.

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