Abstract
Since the development of a country′s manufacturing sector is indispensable for national economic development, it is important to understand the ways in which energy can affect production. We focus on various aspects related to energy consumption in the manufacturing sector of Nepal and analyze the energy demand structure, influence of energy costs on both production and demand, and evaluate the substitution effect of capital for energy. The results revealed the following: (1) the “Clay, Cement, and Lime”, “Foods”, “Metal Products” and “Textiles” industries are major consumers of energy, (2) although the demand for coal is not elastic, the demand for other energy sources is highly elastic with respect to price, (3) changes in the price of total energy and petroleum products have a influence on production, (4) the substitution effect of capital for energy is high in the “Clay, Cement, and Lime”, “Metal Products”, and “General Machines” industries. In addition, we propose that the price of energy, particularly that of petroleum products, should be carefully controlled and that the “Clay, Cement and Lime” industry should receive the most capital investment.
