The effect of oil price on factor demands and total factor productivity: energy-intensive manufacturing industries in European countries importing Iranian oil

Document Type : Original Article


1 Department of Energy Economics, Faculty of Environment and Energy, Science and Research Branch, Islamic Azad University, Tehran, Iran

2 Department of Economics, Faculty of Social Sciences and Education, Razi University, Kermanshah, Iran

3 Faculty of Economics, University of Tehran, Tehran, Iran


This study focuses on the effect of oil price on factor demands and total factor productivity of energy-intensive manufacturing industries in 10 European countries importing Iranian oil during 1980-2010. To do so, factor demand system and productivity growth equation is simultaneously estimated by a seemingly unrelated regression (SURE) method. Using Delta technique, significance level of converted parameters are investigated. It is expected that industries’ oil demand experiences a significant decrease in response to rising oil prices. Cross price elasticity estimates indicate that with rising oil prices, it would be replaced with raw materials in 9 countries, capital in 8 countries, and labor and other energies in 6 countries. Rising oil prices would result in increased total factors productivity as well as average oil productivity. Estimated rebound effects indicate that by implementing energy efficiency policies, consumption of oil and "other energies" will decrease in most countries, due to negative rebound effects, to more than what is expected of full realization of the policies.


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