Analysis
of Fuels Substitution in the Iranian Industerial Sector Using a Linear logit
Model
Davood Manzoor
Associate Professor, Faculty of Economics, Imam Sadiq University, manzoor@isu.ac.ir
Leili Niakan*
PhD Student, Faculty of Economics, University of Tehran,
leili.niakan@yahoo.com
Received: 2012/07/18 Accepted: 2013/09/16
Abstract
Analysis of substitution
between energy carriers is an important topic in economics and energy policy.
Substitution between energy carriers could create radical changes in energy
balance and combinationofenergy supply. Substitution between fuels is often
caused by changes in relative prices. The information about the possibility of
substitution between fuels in evaluating the effects of government policies,
particularly energy pricing policy is very effective. Meanwhile, energy demand
in the industrial sector has great potential for substitution between fuels. In
this study we analyze the substitution between various energy carriers in
Iranian industerial sector during 1367-88 using the linear logit model.
Logistic function by entering lagedvalues, well illustrates the dynamic
adjustment mechanism. Estimation of dynamic linear logit model shows that the
elasticity of gas demand in the industry with respect to its price changes
is-1.25 that is high. In contrast, electricity demandhaslower elasticity
(-0.25) and demand for petroleum products has almost zero elasticity (-0.008).
Petroleum products and electricity are complement, and petroleum products and
gas are substitue by each other. Allen partial elasticity of substitution
between electricity and petroleum products and petroleum products and natural
gas are -0.775 and 1.096 respectively. Furthermore, electricity and gas with
Allen elasticity of substitution equal 0.395 are moderate substitutes for each
other.
JEL Classification: C01,
C13,L16, O13, Q42
Keywords: Substitution Elasticity, Logestic Function, Allen Partial
Elasticity of Substitution, Linear Logit Model, Dynamic Adjustment Mechanism.
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