Subsidies of Energy Carriers and Dynamic Energy Demand Analaysis in the Iranian Manufacturing Industries

Energy is aconsidered as one of the major inputs of production along with other inputs such as labor and capital that contribute to the production process. Moreover, most energy sources have fossil origin and are irreversible, so on the one hand, the basic features of the finitude of other energy inputs to production are distinct and the necessity of energy saving and the possibility of substituting them with the renewable forms are self-evident. Industrial energy demand analysis has always been one of the leading fields of research in economics. This issue is more critical in the case of developing countries, especially those with transitional experiences. In this paper, third generation of dynamic factor demand models for the Iranian manufacturing industries is estimated to analyze the speed of adjustment in factor demands. Using the quadratic functional form, this result was the elimination of energy subsidies in the short term which has a great impact on the industry to reduce energy demand. But, it is believed that in the long run, the intensity of this effect will be diminished. Furthermore, the results show that the speed of adjustment in capital stock of factory industry is very low.