Toward Econometric Estimation of Industrial Energy Demand

An Experimental Application to the Primary Metals Industry

by Kent P. Anderson

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Demand functions for coal, oil, gas, and electricity in the primary metals industry are estimated using data for individual states in 1958 and 1962. Explanatory variables in the demand equation include the prices of the various energy inputs, the wage rate, time, and value added. The dependent variable is the amount purchased per unit of value added. Demand equations are estimated by single equation and simultaneous equation methods. In the latter case, market supply functions are also estimated. In the demand equations, a partially successful attempt is made to separate state-to-state variations in the mix of different types of primary metals firms from state-to-state variations in energy input use within particular types of firms. This is effected by means of a modification of the dependent variable to reflect compositional changes. The results show the own-price elasticities of demand to be important.

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