Energy as a productive input: The underlying technology for Portugal and Spain

In the present work we conceptualize energy as a productive input observing its relationship with capital and labor. A translog cost function is used to study the factor demand in the economies of Portugal and Spain, without a priori fixing any given technological structure. We evaluate the underlying technology in each country. We relate the principal energy variables with the technology, verifying econometrically the basic characteristics of the energy markets. The translog function is also tested for separability of inputs. The results include consistent estimates for the Allen and price elasticities by obtaining confidence intervals for elasticity estimators. We find that there is a diversity of complement–substitute relationships between energy and the other factors.