A short-run production function for electricity generation in China

Abstract

Process industries, such as chemicals, aluminium, steel, pulp and paper, and thermal electricity generation, are important basic industries for economic growth in an economy such as the Chinese one. In order to promote improved efficiency and growth-inducing structural change, it is of paramount importance to model the development of such industries in a relevant way. It will then be necessary to go outside the smooth textbook production theory and turn to models incorporating typical features of process industries, such as embodied technical change, a sharp difference in substitution possibilities before and after investing, and a dynamic change at the industry level driven by entry and exit of plants and embodied technical change. The purpose of the paper is to give an introduction to the key production function concept of a short-run industry production function, and to show how this concept is the key to understanding industry dynamics. An empirical application is made on data for Chinese coal-fired electricity generation plants for one year. However, this will only be the first stage in a full-blown dynamic analysis. Combined cross-section and time-series data for plants are then required.

Keywords:

• short-run production function
• embodied technical change
• dynamic structural change
• Chinese electricity generation

JEL Classifications::

• C43
• C61
• D24

Acknowledgements

We are indebted to Anders Hjalmarsson for carrying out the calculations and providing the graphical illustrations of the short-run industry function.

Notes

Notes

1. Although the data may seem old, this is the only case of plant data being used to estimate a short-run industry function on Chinese plant data that we are aware of.

2. The data are found in a PhD dissertation by Fei Teng (2002) from Tsinghua University.

3. However, in Hildenbrand (1981), the complete region, including the uneconomic one, is shown.