The Relationship between Production Inputs and Energy Carriers in Iran's Manufacturing Sector

In this study, by using manufacturing firm's cost functions and their demand for inputs, we attempt to find the relationship between production inputs and energy carriers during (2005-Ç2013). A dynamic model is implemented to derive the short and long-run elasticities of demand and substitution.
The results show that during the period 2005-Ç2013, energy and capital were complement for labor, and energy and labor were complement for capital. Also, labor and capital were substitute for energy. However, these relationships have been changed for the period 2011-2013, where all production inputs were substituted with low elasticity.
Furthermore, the results suggest that all energy carriers in manufacturing sector are substitute. Specifically, natural gas and gasoil have a strong potential for substitution. Moreover, the possibility of substituting natural gas and gasoil for electricity is less possible than substituting electricity with them. Also, comparing the short-run and long-run elasticities suggests that an increase in energy carrier's price decreases its demand from short-run to long-run.