Pakistan Institute of Development Economics



The Energy Demand in the Industrial Sector of Pakistan

The purpose of this study is to analyse the role of energy inthe manufaCblring sector of Pakistan. The translog cost functionalongwith 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 lowDurbin-Watson statistics. The results justify the inclusion of energy asa separate factor of production. Price elasticities and Allen-Uzawapartial substitution elasticities have been estimated. Own priceelasticities indicate a rather inelastic demand fOl” inputs. Cross-priceelasticities show that energy and labour, and capital and labour aresubstitutes. The partial substitution elasticities between enellY andcapital are negative; which implies that higher energy prices willadversely affect investment in capital goods. On the other hand, thepositive substitution elasticity between energy and employment impliesthat higher energy prices would induce more labourabsorption.

Fakhre Mahmood, Salim Chishti

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