Energy Substitution,Separability, and Technical Progress in the Australian Iron and Steel Industry

The effects of the “energy crisis” on the Australian iron and Steel industry are analyzed by using a flexible functional form, the transcendental logarithmic (translog) function, which represents a second-order approximation of any twice differentiable function. The robustness of the translog is analyzed with special attention paid to factor aggregation and separability conditions as they relate to the specification of the functions. The estimation results suggest that capital and energy are substitutes, that aggregation of administrative workers and production labor is inappropriate, and that materials are weakly separable, thereby allowing the estimation of a capital, labor, and energy model. The data set developed covers the financial years from 1946–47 to 1978–79. This 33-year time series allows the use of different temporal subsets. Technical progress is shown to be capital and energy using and labor and material saving. An energy submodel is specified using solid fuels, oil, electricity, and gas; and the interfuel substitutions are estimated.