On the relationship among energy consumption, carbon dioxide emissions, and economic growth: The case of Korea

Mounting concerns over "global warming" urge world economy to reduce CO;We find limited possibility of interfactor substitution because energy can only be replaced by labor not by capital in the estimation of dynamic and static translog model. This study provides some new evidence on the nature of dynamic effects in Korea that most of the adjustment is done in a year. Energy saving technological progress is expected to slow down CO;We also find that the all final energy sources, oil, coal, and electricity are substitutes. Especially the most pollutant fuel, coal, has greatest potential to be substituted by other fuels. However, due to low price elasticities, the potential of substitution is estimated to be limited. We show the effect of carbon tax may not be effective policy in curbing CO;The roles of energy and capital in Korean labor productivity growth and potential economic growth are also identified in Error Correction models and least squares estimation. As expected, energy per work hour, utilized capital per work hour, and labor productivity are non-stationary and cointegrated. We find that energy played almost equally important role as capital or labor in Korean development. Sharp trade-off between energy consumption and economic growth found in the simulation implies interfuel substitution and enhanced fuel efficiency are desirable rather than direct energy regulation or taxation.