This paper investigates the effects of investments on energy efficiency performance using data from Colombian manufacturing industries. These industries were analysed as a whole and as energy intensive sectors and nonenergy intensive sectors between 1998 and 2005. Using a simple factor demand model, we estimate the structural parameters of the model using both time-series and cross-sectional dimensions of the data, and we include the effect that investments have on energy efficiency in Colombian manufacturing industries. The results showed that in Colombian manufacturing industries overall, as well as in non-energy intensive sectors, the main variables that determine energy efficiency performance are energy prices, machinery and equipment investments and foreign investments. Whereas electricity prices show lower significance levels, investments in research and development (Randamp;D) are not statistically significant. In contrast, for energy intensive sectors, only energy prices and foreign investments are statistically significant. Therefore, these results demonstrate the close relationship between energy prices and investments with respect to energy efficiency improvements in Colombian manufacturing industries. These findings have important implications for policy makers aiming to encourage governments to adopt strategies that combine energy prices and technological change, as well as those policy makers wishing to strengthen foreign investment in order to improve technology development, productivity and energy efficiency in manufacturing industries.
