The Energy Demand in the Industrial Sector of Pakistan

Abstract

The purpose of this study is to analyse the role of energy in the manufaCblring sector of Pakistan. The translog cost function alongwith the input demand equations corresponding to enel'kY, capital, and labour have been estimated, using Zellner's iterative procedure. Time trend has been included in the cost equation in view of the low Durbin-Watson statistics. The results justify the inclusion of energy as a separate factor of production. Price elasticities and Allen-Uzawa partial substitution elasticities have been estimated. Own price elasticities indicate a rather inelastic demand fOl" inputs. Cross-price elasticities show that energy and labour, and capital and labour are substitutes. The partial substitution elasticities between enellY and capital are negative; which implies that higher energy prices will adversely affect investment in capital goods. On the other hand, the positive substitution elasticity between energy and employment implies that higher energy prices would induce more labour absorption.