Energy and the non-energy inputs substitution: evidence for Italy, Portugal and Spain

The factor demand is modeled for Italy, Portugal and Spain. We estimated a translog cost function with capital, labor and energy over the 1980-1996 pe riod. Our objective regarding energy as input was two-fold: on the one hand , to verify its incorporation as a productive factor, and, on the other, to observe its degree of substitutability with the other classical factors, g iven the high level of energy dependency of these countries. Using a separa bility test and confidence intervals for the Alien and price elasticities, our estimates confirmed both the nonseparability of the energy input and th e existence of consistent substitution between energy and labor only for It aly. (C) 2001 Elsevier Science Ltd. All rights reserved.