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Abstract
Subsidised energy prices in pre-transition Hungary had led to excessive energy intensity in the agricultural sector. Transition
has resulted in steep input price increases. In this study, Allen and Morishima elasticities of substitution are estimated to study
the effects of these price changes on energy use, chemical input use, capital formation and employment. Panel data methods,
Generalised Method of Moments (GMM) and instrument exogeneity tests are used to specify and estimate technology and
substitution elasticities. Results indicate that indirect price policy may be effective in controlling energy consumption. The
sustained increases in energy and chemical input prices have worked together to restrict energy and chemical input use, and
the substitutability between energy, capital and labour has prevented the capital shrinkage and agricultural unemployment
situations from being worse. The Hungarian push towards lower energy intensity may be best pursued through sustained
energy price increases rather than capital subsidies.
© 2003 Elsevier B.V. All rights reserved.