Energy Prices and Induced Technological Progress

We measure energy price induced technological progress using directional distance function for a panel data of 55 countries over the period 1974 to 2000 and find several important insights. First, we observe larger induced technological change effects in developed countries in the periods after first (1974), and second (1980) world oil crisis that caused substantial energy price increases. Second, the magnitude of factor bias arising from energy price induced forces is typically greater than the factor bias arising from exogenous forces. Third and finally, the estimates of elasticity of substitution lend support to the argument that the effective way to reduce energy consumption is an overtime increasing tax on energy use