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Abstract
This study estimates inter-fuel substitution elasticities and long-run substitution elasticities
between energy and non-energy aggregate inputs used by production sectors in Malawi. All
fuels are Morishima substitutes but there are significant sectoral variations in the magnitude
of the elasticities. This indicates that economic instruments should be considered for energy
policy but such policies should take into account not only differences in technology used
across sectors but also the systematic distribution of costs when the relative prices of fuels
change. Estimates of long-run elasticities for aggregate input demands indicate that energycapital
input ratios adjust faster than labor-capital input ratios. This suggests that investment
policy should take into consideration tradeoffs between environmental gains and employment
implicit in the production structure of the Malawian economy, as both capital and labor
demands have dynamic interactions with energy in the long run, with potential significant
cumulative impacts on the environment.