Substitutability Between Energy and Capital in Basic Metals Manufacturing

One of the most important issues about production structure and measurement of factors utilization in industry is the study of substitutability among the production factors. While, energy, for its particular features like finite and the direct relationship between energy usage and air pollution; and specifically abundance of energy resources and allocation of subsidies to different energy carriers in Iran, has led to the fact that energy factor and its substitutability with other factors become of high importance. In this way, basic metals manufacturing are one of the fundamental industries parts which consume a lot of energy and are regarded as one of the high value added parts. The main concern of this study is the estimation of energy factor demand, and the factors affecting basic metals manufacturing during 1373-1382. In addition, the complementary and substitutability of electricity and other factors in basic metals manufacturing are studied. Using panel data models of Translog, factor demand is estimated for labour, capital, electricity and other energy carriers. In estimating the models fixed effect and ISUR have been used. The results of the study show that, capital and electricity are complementary while capital has the substitutional relationship with other energy carriers. Substitution between electricity and the other careers are not confirmed. The corresponding own-price elasticities are -0.49 for labour, -0.10 for capital, -0.39 for electricity and -0.31 for other energy careers.