Abstract
A translog production function model with input factors including energy, capital, and labor is established for China’s heavy industry. Using the ridge regression method, the output elasticity of each input factor and the substitution elasticity between input factors are analyzed. The empirical results show that the output elasticity of energy, capital and labor are all positive, while the output elasticities of energy and capital are relatively higher, indicating that China’s heavy industry is energy- and capital-intensive. Simultaneously, all the input factors are substitutes, with the substitution between labor and energy having the highest degree of responsiveness. The substitution elasticity between labor and energy is decreasing, while the substitution elasticities of capital for energy and labor are increasing. More capital input can help to improve energy efficiency and thus accomplish the goal of energy conservation in China’s heavy industry.
Highlights
With the rapid economic growth since the beginning of the 21st century, China’s total primary energy consumption has been growing
The results show that there is a significant multi-collinearity among the variables, we use ridge regression instead of the ordinary least squares (OLS) in this paper
The output elasticity of energy, capital, and labor are all positive, which means that increase in factor inputs increases total output
Summary
With the rapid economic growth since the beginning of the 21st century, China’s total primary energy consumption has been growing. In 2009, China surpassed the United States to become the world’s largest energy consumer; with primary energy consumption of 3014 million tons of oil equivalent (toe) in 2015, accounting for 22.92% of the world’s consumption. The primary energy consumption of the United States has remained stable since the peak level of 2350 million toe in 2005. In 2015, the primary energy consumption of the USA was about 2280 million toe, accounting for 17.35% of global consumption (Figure 1). China’s energy consumption is dominated by fossil fuels. With the growing concerns about global warming, China is facing enormous pressure on energy conservation and emission reduction
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