Parametric estimation of conditional water demand function in manufacturing industries (case study of Iran)

Water shortage in Iran is one of the main limiting factors for the development of economic activities in the next decades. Therefore, the main purpose of this study is to estimate the water demand function in Iran's manufacturing industries. For this purpose, the Translog Cost Function has been used. The data used in this research are related to Iran's manufacturing industries during the years 2002 to 2017. The results of model processing show that in all Allen partial elasticity has the correct and expected negative sign. In other words, the inverse relationship between price and demand for water in terms of absolute value is greater than other inputs. In other words, the sensitivity of water input demand to price changes is higher than other inputs and energy, capital and labor inputs are in the next. The absolute value of the numerical value of the price elasticity of all inputs is less than one, therefore it can be said that demand for all inputs is inelastic. The Morishima elasticity of substitution indicate that the tensile ratio of water, labor, energy and capital factors is less than one and all of them have a positive sign. In other words, inputs have a substitution relationship. Based on the research findings and considering that the price elasticity of water input is about one, it seems that price policies will not have an effect on reducing demand and saving water or will be very low.