Inter-Energy Substitution in Korea, 1962-1975

In Korea, oil composed only 8.2 percent of total energy consumption in 1962. But oil consumption has grown rapidly through the first and second five-year economic development plan, comprising 52.7 percent of total energy consumption in 1971. One of the most important reasons of the change in the composition of energy consumption through time is the change in the relative price of energy sources. This paper utilizes a translog unit cost function to examine the substitution possibilities among electricity, oil, and coal in Korea. The estimation results with the 1962-1975 aggregate national time-series data shows that the three energy sources are all substitutable and that electricity and coal are the best substitutes.