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 period. 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, given the high level of energy dependency of these countries. Using a separability test and confidence intervals for the Alien and price elasticities, our estimates confirmed both the nonseparability of the energy input and the existence of consistent substitution between energy and labor only for Italy.