A Dynamic Model of Industrial Energy Demand in Kenya

Abstract

This paper analyses the effects of input price movements, technology changes, capacity utilization and dynamic mechanisms on energy demand structures in the Kenyan industry. This is done with the help of a variant of the second generation dynamic factor demand (econometric) model. This interrelated disequilibrium dynamic input demand econometric model is based on a long-term costfunction representing productionfunction possibilities and takes into account the asymmetry between variable inputs (electricity, other-fuels and labour) and quasi-fixed input (capital) by imposing restrictions on the adjustment process. Variations in capacity utilization and slow substitution process invoked by the relative input price movement justifies the nature of input demand disequilibrium. The model is estimated on two IS1C digit Kenyan industry time series data (1961 - 1988) using the Iterative Zellner generalized least square method.