Declining energy intensity in the U.S. agricultural sector: Implications for factor substitution and technological change

Abstract

This study examines factor substitution and energy intensity in the U.S. agricultural sector. Not only does this study focus on the substitution possibilities between energy and non-energy factors, but it also attempts to identify the factors that determine energy intensity. For the empirical analysis, a system of share equations for capital, energy and labor is estimated to calculate the price elasticities of factor demand. The findings reveal that energy demand is more elastic than the demand for capital and labor, and factor substitution possibilities exist across farm production regions. Moreover, the growth rate of energy intensity is decomposed into various driving forces, such as changes in budget, factor substitution, output and technology. The findings show that the budget and output effects are the major driving forces behind the reduced energy intensity, while there are few factor substitutions and technological improvements to reduce energy intensity in the U.S. agricultural sector.