Abstract
Energy prices have large impacts upon production costs and therefore economic growth. For an industrialized country with very tight energy supply constraints, increasing energy costs may drive the firms to seek for technological progress and innovation to compete internationally. Using the Japanese monthly data of 1975-2009, this study tests the assumption of endogenous cost-driven technological progress. We identify a long-run equilibrium cointegrating relationship among the Japanese industrial production, energy prices, export volumes and export prices. Although energy prices are negatively associated with Japanese industrial production in static equilibrium, the empirical results of Granger causality tests show that an increase in domestic energy costs has significantly positive effects on Japan's industrial production as well as on export volumes and prices, in both short-run and long-run. We document that there exists an endogenous technological progress driven by energy costs in Japan. (C) 2011 Published by Elsevier Ltd. Selection and/or peer-review under responsibility of the Organizers of 2011 International Conference on Energy and Environmental Science.
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