Publication Date


Journal or Book Title

Southern Economic Journal


In this note we report results of a study of energy substitution in manufacturing, using two- digit data disaggregated by region in a dynamic, disequilibrium model of firm input demand. The question of regional differences in the impacts of energy price changes is an important one. National energy policy is worked out in a climate of great conflict among regions, based on real or imagined differences in the perceptions of the role of energy in production. For example, it has become commonplace to hear that the older regions, such as the Northeast, will be hurt more by energy price increases than newer regions, such as the Southwest. In a previous paper we presented results of estimating regional models with a static, full equilibrium manufacturing cost function [6]. We used pre-1974 data, which may have reflected something close to long-run equilibrium positions for firms. It seems valuable, however, to analyze data from a slightly later period with one of the more recently developed models that permit firms to be out of long-run equilibrium. This could yield substantially greater understanding of the direction and speed of induced input adjustments undertaken by firms of the different regions in response to the large price changes of the