Dynamic Factor Demand Analysis in the Iranian Manufacturing Industries

Document Type : Research Paper


1 M.Sc. Economic Development Planning

2 Isfahan University of Technology, Faculty of Economics and Administrative Sciences


Factor demand behavior such as energy demand has an important role in the economic analysis. This issue is a major concern in the developing countries (e.g. Iran) which are benefited from vast energy resources. In this paper, the third generation of factor demand models is used to analyze the behavior of capital adjustment in the Iranian manufacturing industries. The dataset covers the two-digit International Standard of Industrial Classification (ISIC) during 1995-2007. The Generalized Leontief functional form has been chosen as an empirical model and estimated by Full Information Maximum Likelihood (FIML) method. The findings indicate that capital, electricity, and other energy carriers are complements in the manufacturing industries and the speed of adjustment for capital input is very low. Also, labor is an inferior input in the Iranian manufacturing industries.
 JEL Classification: C33, L6, L60, Q42