The determinants of aggregate energy use in West Germany: factor substitution, technological change, and trade

This paper examines the determinants of production-related energy use in West Germany over the period 1976-1994. The approach is to estimate a system of share equations for energy, capital, low-skilled labor, high-skilled labor, and materials in the West German production sector, taking account of biased technological change and increasing trade orientation. While technological change is found to be energy saving, increased openness is energy using, i.e., tends to increase the energy share. Factor substitution, biased technological change, and trade contribute to the year-to-year volatility of energy intensity in the proportion 66:30:4. The results are robust across several specifications examined.