The book presents a stochastic analysis based on production risk and
application of this method in the industrial sector under production
risk where energy use is an input factor. Using South Korea as a case
study, the book empirically models energy demand at the industrial level
and analyzes the results to identify key determinants of energy demand,
productions level, productions risk and energy usage efficiency.
Particular attention is paid to the factors that enhance production risk
or increase variations in energy input during production. A dynamic
panel model is specified and applied to 25 Korean industrial sectors
over the period 1970-2007. The determinants of energy usage are
identified and their effects in the form of elasticities of energy usage
are estimated. In addition the structural changes in the energy demand
pattern are explored. Stochastic production technology is applied to
create two primary models: A production model where the energy usage is
a determinant of output and an energy demand model based on an inverted
factor demand model where demand is a key determinant of the level of
energy usage.
The findings reveal that: First, there are large variations in the
degree of overuse or inefficiency in energy usage among the individual
industries and over time; second, ICT (information and communication
technology) capital and labor are substituting energy; third, ICT
capital and value added services are two input factors decreasing the
variability of energy demand while non-ICT capital, material and labor
are increasing the variability of energy demand. Finally, the results
suggest that technical progress contributes more to the increase of mean
of energy demand than to the reduction of the level of risk. An emerging
recommendation is that industries increase the level of ICT capital and
digitalization and invest more in R&D activities and value added
services to reduce the uncertainty related to their demand for energy.
This study forms the structure of the demand for energy under stochastic
production risk for the South Korean industrial sector. Public research
programs aimed at the industrial sector should be concerned about both
mean and risk properties in research on new technologies and in the
investigation of possible alternative energy inputs.
This book describes the state of the art in energy usage analysis and
production risk, applying factor requirement methodology. It will be of
use as a main or supplementary text in the teaching of advanced graduate
courses but also as a reference for those working on empirically
advanced research. The book is an important addition to the existing
literature on industrial development, with its focus on energy as a core
production input.
