On Biased Technical Change: Was technological change in Japan electricity-saving?

Author Name SATO Hitoshi  (Fellow, RIETI)
Creation Date/NO. September 2013 13-E-077
Research Project Study of the Creation of the Japanese Economy and Trade and Direct Investment
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Since the Great East Japan Earthquake, electricity generation has declined in Japan, and electricity prices have allegedly increased. The literature on biased technical change suggests that such electricity supply constraints may induce a biased technical change. This paper explores the extent to which the technical change in Japanese industries is biased, using a system of translog cost share equations where electricity and non-electric energy are separately treated as inputs. Using Japanese industry data over the 1973-2008 period, our findings confirm that technical change has been energy-saving but not electricity-saving in many industries, and that it tends to be labor-saving and capital-using. As a result, factor prices are much more important than technical change as a determinant of electricity's cost share.