Ghanaian energyeconomy:Inter-productionfactorsand energy substitution

Abstract

Industries in Ghana depend highly on petroleum to fuel their operations, which has brought immense environmental threat from greenhouse emission gas (GHG). This study tried to investigate potential substitutability of factor inputs and fuel inputs among capital, labor, petroleum, and electricity in Ghana by adopting the translog production and cost function approach. We used Ridge regression techniques to estimate the parameters after our data show possibility of multicollinearity. Our results show that, all inputs are substitutes with their relative technological progress also showing evidence of convergence. This suggests that, redirecting resources into the improvement of technology towards cleaner energy production like electricity will be a success over time, and this will mean that the fueling of the economy will be done in a cleaner environment and mitigating CO2 emissions as well. The improvement of electricity production and the promotion of its use require government policies that will enable industries to adjust to the switch from one input to the other through capital subsidies and tax rebates. Also, energy-labor and capital-energy being substitutes in our findings suggest that removal of all energy subsidies will reduce the use of energy and increase capital and labor intensiveness. Input switch by industries will promote merger of smaller firms with bigger firms that have cost advantages during the switch period and requires a clear government merger control policies.

In a nutshell, our findings provide an insight into policies to promote the use of renewable energy, energy intensity, and merger policies.