Fuels substitution possibilities and the technical progress in Pakistan's agriculture sector

Abstract

Energy mix in Pakistan's agriculture sector is dominated by oil and electricity, which has created serious environmental issues, contributing enormously to CO2 emissions and economic growth. Existing research has tried to analyze the potential of fuel substitution possibilities and technical progress between labor, capital, and energy consumption by employing a trans-log production function. Due to the presence of multicollinearity in our data, we used the ridge regression. The outcomes prove: all the inputs are substitutes. The output elasticity of energy is the highest, followed by labor and capital. The elasticity of substitution between the pair of factors (labor-energy, capital-labor and capital-energy) is a substitute and close to unity, proposing that energy is a productive substitute for labor and capital. The elasticity of substitution between labor-energy is the highest, which suggests that huge investment in technical labor and renewable energy will remove the subsidies in supporting capital and labor. The input’ capital-labor and labor-energy are substitutes with their relative technical progress, while labor-capital also showing evidence of convergence. It suggests that Pakistan's agriculture sector can achieve mixed energy and improve capital and skilled labor because the speed of energy consumption is quicker than labor and capital. Furthermore, suggestions related to results are discussed below.