The role of energy use in industry and mine's production process

The important role of energy is neglected in neoclassical growth and production theory and usually output is taken to be a function of labor and capital alone. However one cannot underestimate the vital role of energy in the production process. In this article, by including energy use as an input in the production function, we have tried to estimate the long run energy elasticity of production in order to show how important energy use could be in the industrial production process. In doing so, by using co-integration methodology and ARDL approach, we have estimated a production function, by the aid of time series data for the period 1344-1391.
Based on the result obtained from estimating the production model, we find a production elasticity of 0.48 for the energy input which is greater than the elasticity of production for capital and labor which is estimated to be 0.45 and 0.42 respectively, this finding shows the vital role of energy in the industrial production process. Result obtained from estimating the Error Correction Model (ECM) indicate that the coefficient of last period long term disequilibrium error is to be 0.21. This means that about 21 percent of long term disequilibrium error is corrected within each period. It also shows how difficult is to adjust factors of production in the short run industrial production process.