Application of the translog model of energy substitution to developing countries: The case of Korea

While studies exist on the applications of the translog energy model in developed countries, little is known about its application in developing countries. To this end, this paper investigates the long-run sensitivities of energy demand to price changes, and the degree of interfactor and interfuel substitution in the Korean industrial sector. We also uniquely disaggregate the industrial sector into nine manufacturing and three non-manufacturing subsectors. Based on time-series data obtained from the Korea Institute of Energy and Resources, an energy demand model has been specified and estimated according to the translog approach. The conclusions provide future directions for energy demand management policies in Korea.