Elasticity of Substitution between Clean and Dirty Energy Inputs - A Macroeconomic Perspective

43 Pages Posted: 4 Nov 2013

See all articles by Chris Papageorgiou

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department

Marianne Saam

ZEW – Leibniz Centre for European Economic Research - Information and Communication Technologies Research Group

Patrick Schulte

Deutsche Bundesbank

Date Written: October 23, 2013

Abstract

Recently Acemolgu, Aghion, Bursztyn and Hemous (AER 2012) formulated a model in which a high macroeconomic elasticity of substitution between clean and dirty production represents a crucial condition for green growth. Until now it has never been systematically estimated. Using a novel panel of cross-country sectoral data, we formulate specifications of nested CES production functions that allow to estimate a special case of this parameter: the elasticity of substitution between clean and dirty energy inputs. Contrary to what is expected based on the earlier interfuel substitution literature, we find evidence that this elasticity exceeds one.

Keywords: Clean and dirty energy inputs; aggregate elasticity of substitution; CES function; cross-country sectoral data; environmental policy

JEL Classification: O44; O47; Q54; Q58

Suggested Citation

Papageorgiou, Chris and Saam, Marianne and Schulte, Patrick, Elasticity of Substitution between Clean and Dirty Energy Inputs - A Macroeconomic Perspective (October 23, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-087. Available at SSRN: https://ssrn.com/abstract=2349534 or http://dx.doi.org/10.2139/ssrn.2349534

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Marianne Saam (Contact Author)

ZEW – Leibniz Centre for European Economic Research - Information and Communication Technologies Research Group ( email )

D-68034 Mannheim
Germany

Patrick Schulte

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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