Econometric estimate and selection on China energy CES production function

More and more researchers use CGE(Computable General Equilibrium) model to estimate how the economy might react to change in policy, technology or other external factors in China. These researches at present are mostly on the analysis of economic and policy impact, but the research on the constructing of the production function of the supply module is not enough, neglecting the importance of constructing China's actual production function, It is clear' that the study of this problem is very useful and urgently needed. This article uses the Chinese capital formation data from 1980 to 2006 to revaluate capital stock, estimates the parameter's of the CES (Constant Elasticity of Substitute) production function and then amends the parameters by optimization method. The results of the calculation show the two-level CES approach with energy and capital in the nested function and labor as the substitute to energy plus capital is appropriate for China. The substitution elasticity between energy and capital is 0.47, lower than the result of GREEN model and Kemfert' s estimating result; the substitution elasticity between energy and capital aggregation and labor is 0. 84. This study is meaningful when constructing the production function of the supply module of CGE.