The demand for energy in the large-scale manufacturing sector of Pakistan

The extent of interfuel substitution, as well as substitution between energy and non-energy inputs, in the large-scale manufacturing sector of Pakistan has been examined. The model has been estimated in two stages. In the first stage input demand for various energy components is estimated and hence an aggregate Divisia index is constructed. In the second stage this index is used as an instrument to estimate aggregate input demand for capital, labour and energy along with their price and substitution elasticities. It seems that there is little interfuel substitution. The results also show that energy and labour are substitutes while energy and capital are complement.