Fueling the US Economy: Energy as a Production Factor from the Great Depression Until Today
FCN Working Paper No. 02/2017
26 Pages Posted: 9 Nov 2017 Last revised: 5 Jan 2018
Date Written: May 1, 2017
We analyze the relationship between factor augmenting technical change and factor substitution through a nested CES function using capital, labor, and energy inputs. We use US aggregate data on output, factor use, and factor prices for the years 1929–2015 to show the interdependence and coevolution of the different input factors. We demonstrate the robustness of the system of equations approach for estimating such a production function. We find that the input factors are gross complements, and that in the time period considered, technical change was mostly labor saving, while the linear time trend of energy augmenting technical change was zero.
Keywords: aggregate production, technical change, multi-factor production, energy demand
JEL Classification: C13, C32, E23, O33, Q43
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