Capital–energy substitution in China: regional differences and dynamic evolution

Abstract

This article estimates the capital–energy Allen elasticities of substitution in China’s 28 provinces over the period 1995–2011. The central finding is that the capital–energy substitution elasticity in each province exhibits significant heterogeneity. The article empirically analyses the sources of the differences in the capital–energy substitution elasticity. The embodied technical change and market distortions are found to have significant effects on the degree of substitution elasticity. Further factor market reforms, liberalisation and cooperation would improve the elasticity of capital–energy substitution.