Author

BONG CHIN KIM

Date of Graduation

1986

Document Type

Dissertation/Thesis

Abstract

The objective of this dissertation is two fold: (1) to investigate the long-run sensitivities of energy demand to price changes, and the degree of interfactor and interfuel substitution possibilities in the Korean industrial and residential sectors; and (2) to examine in what way and to what extent the energy aspects conflict with overall development objectives in Korea. Unlike other energy demand studies, the industrial sector is further disaggregated into nine manufacturing and three non-manufacturing subsectors. For the model specification, a translog cost share function is adopted. The interfactor substitution model includes capital, labour and energy inputs. Under the weak separability assumptions, energy input is further disaggregated into coal, oil and electricity. The results are as follows: (1) Energy and capital are weak substitutes in the energy intensive manufacturing subsectors. In contrast, energy and labour are complements. Very few of the estimated elasticities exceed one. This implies that there are highly limited opportunities for the substitution of capital and labour inputs for energy. In the residential sector, the estimated cross-price elasticities between energy and other expenditure categories are highly inelastic. The result implies that relative changes in energy prices have not significantly induced changes in the overall level of energy consumption. (2) Coal is capable of replacing oil and electricity in the industrial sector, while oil and electricity are complements. The own-price elasticities for oil show considerably inelasticity in the all subsectors. In contrast, coal exhibits very high own-price elasticities in manufacturing subsectors. In the residential sector, the own-price elasticity for coal was highly inelastic. (3) Based on the structure-intensity analysis, changes in industrial structure over the past two decades worked in favor of industries with more energy intensive production. Furthermore, these industries grew more rapidly than the less energy intensive industries. The energy intensive industries appear very attractive as key sectors in terms of overall development planning criteria, however these industries are the most unattractive sectors according to energy conservation potentials. Therefore, the formulation of future energy demand management policy should be two dimensional: the restructuring of the industrial mix with more emphasis on the improvement of energy use efficiency and changes in the traditional energy pricing policy. (Abstract shortened with permission of author.).

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