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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 cost function representing production function 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 ISIC digit Kenyan industry time series data (1961 - 1988) using the Iterative Zellner generalized least square method.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy Modeling – Sectoral Energy Demand & Technology; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

Keywords: Industrial energy demand, Kenya, Dynamic econometric model, AES

DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No4-10


Published in Volume15, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.