The structure of technology in the UK iron and steel industry : a vintage modelling approach

The study is intended as a further contribution to the methodology of applied econometric analysis, with application to the structure of technology in production. The study is based on a vintage modelling approach developed initially by Fuss (1977) and extended further by Ingham, Ulph et al (1988, 1990, 1991, 1992, 1995). Whereas Ingham et al have analysed UK manufacturing, excluding the iron and steel sector, this work reports results obtained by fitting a vintage model of the structure in the UK iron and steel industry for the period 1955.1 to 1989.4.The response of the UK iron and steel industry to changes in relative energy input prices is examined. By distinguishing the two-stage nature of the production decision, the extent of ex-post substitution is determined, and empirical assessment of production relationships undertaken, with respect to the maintained hypothesis of a putty-semiputty production structure. Evidence is found in support of this hypothesis. Changes in production methods are considered within the framework of a vintage model developed to analyse technological structure in manufacturing. The empirical results obtained for iron and steel are generally in accord with those for the UK manufacturing sector in toto. Simulations conducted with the vintage model provide empirical measures of price elasticities and energy demand responses to changes in values of exogenous inputs, for a range of price and other exogenous changes. The rate of response is found to be positively related to size of price changes.