Printer Friendly

Estimation of steel ingot production function by emphasis on the placed role of scrap metal in Esfahan Steel Company.


Focusing on industry and growth of the industrial sector in the developed countries is a necessity in order to reduce technological distance in those countries and developing ones [3]. Since the developing countries have now referred to spatial, electronic, more complicated and computer industries, necessity of paying more attention to the pace of development in the developing countries is felt more than before. In here, growth and development of the heavy industries have particular significance [5]. Due to having the greatest share in the metals used in various industries, Iron and steel are the cheapest metals and they provide their own specific functionality such as strength, hardness and corrosion resistance, facilities and infrastructure of economic growth and development. Moreover, Steel industries are in the center of attention in terms of providing a broad level of employment and its export possibility [8]. Therefore, the steel and iron products have vital importance in terms of economic development and national security and it's required to study the problems, issues, obstacles, growth and development solutions of such industries.

The Importance of Iron and Steel Industry:

Steel and iron products for each country has vital importance in terms of national security and economic development and used as the essential metals for all industrial activities. Although existence of alternatives is acceptable in technical terms in most fields, therefore there is no alternative in short term and in practice due to lowness of iron and steel price and unavailability of other materials.

More than 90 percent of the metals used in most industrial countries in weight term are iron and steel; therefore, it's necessary to make sure of continuous facilities for national security of these countries. This metal is applied for production of military equipment and support of non-military activities as well as being used as the main metal in ground vehicles, shipbuilding and machinery construction. Additionally, almost all large buildings can be built with reinforced concrete or steel structure.

Iron and steel have the most shares in the metals used in that section of the mineral, drilling activities and pipelines related to energy, refineries and power plants. Moreover, the small amount of steel is used in some sensitive areas of spacecraft. Thus, it is impossible to find an alternative in the short term due to its very varied and high use in comparison with other metals [9].

Creation of iron and steel industries not only has been considered in terms of independence and relative self-sufficiency and currency economy, but also this industry has very positive impact on other economic parts of the society and widely provides the required materials for various side dependent industries including transportation and construction of various industrial machineries and construction section of employment opportunities which should be regarded as subjects with importation facilities along with provision of local needs [2].

Considering role of the industry, especially parent and heavy industries including steel industry in the process of industrialization and development of the developing countries, it's necessary to study and identify more the issues and problems related to these industries as well as trying to solve such problems. In Iran, Esfahan Steel Company is one of the greatest active companies in the industry and the subject of its activity is to produce some materials which have late the previous link with other industries such as steel. In addition, such industry has dedicated a wide volume of physical and human capital resources and it has faced losses continuously in most years due to various reasons including work force market, unnecessary costs and wasting sources and raw materials [2].

The Relationship between Production Factors and Production Volume:

An economic firm is a technical unit in which the goods are produced. Owner or manager of the firm decides about which amount must be produced, which type of products must be produced, which amount of benefits must be achieved or how much the loss will be.

The owner of the firms (production and raw materials factors) converts the inputs to outputs (products). Of course, regulation function is a technique to be determined by the production function. Difference between earnings from the product sales and cost of the production factors form its benefits. If this discrepancy is positive, it shows the benefits. If it is negative, it shows the loss.

Manufacturer's production function represents the mathematical form of the relationship between the amounts of production factors used with the amount of goods which produces.

A production function can take different forms; the production function can be equivalent to a point, a continuous or non-continuous function, a single value or a set of equations.

An input is a product or service helping to produce a specific product. A producer generally uses various inputs for production of a product (good). Some inputs may be the products of other economic firms. For instance, steel plays a productive role in automobile industry, whereas the very steel plays role of a product or input for steel producer. Other factors and inputs (such as work forces, land and mineral resources) are not producible. Other factors or inputs (such as labor, land and mineral resources) are not producing. For a specified period of time, production factors are divided into two fixed and variable groups. One factor of fixed production (inputs) is necessary to produce the, but the required value of these factors is unrelated to the amount of production. Regardless to the maximum plan of profit in the short-term bears costs of this group of inputs. Amount of variable required inputs of the manufacturer depends on the amount of production. The distinction between fixed and variable factors of production is temporary.

Inputs that are fixed in a period of time will be variable in longer period of time (Henderson and Kowant, 1991).

The general explicit fonn of the production function can be written as below:

y = f ([X.sub.1], [X.sub.2], ..., [X.sub.n]; [X.sub.n+1], ... [X.sub.m]; [X.sub.m+1], [X.sub.m+2], ..., [x.sub.l])

In which: y is dependent variable of production and a function of below production inputs:

([X.sub.1], [X.sub.2], ..., [X.sub.m]; [X.sub.n+1], [X.sub.2], ..., [X.sub.m+1], [X.sub.m+2], ..., [X.sub.l])

For a multi-product and multi-agent manufacturing firm that uses the production factor to produce m different production. General form of the production function can be displayed implicitly as below:

F([y.sub.1], [y.sub.2], ..., [y.sub.m]; [X.sub.1], [X.sub.2],..., [X.sub.l]) = 0 [y.sub.k] [greater than or equal to] (k = 1,2, ..., m)

Dimensions of [y.sub.k] and [X.sub.i] are the same as physical units on time.

Variables and Research Model:

For compatibility with productive structure dominant on steel plant and based on the conducted studies in the previous chapters, a pattern is selected which is flexible regarding returns to scales, production area and form of the production function. In this study, the final and implicit form of the production function used for the steel plant is as below:

Q = f(K,L,M,E)

In which Q is the production of steel converter, K capital, L labor, M raw materials and E energy.

Ln[Q.sub.t] = [[alpha].sub.1] + [[alpha].sub.2]Ln[L.sub.t] + [[alpha].sub.3]Ln[K.sub.t] + [[alpha].sub.4]Ln[M.sub.t] + [[alpha].sub.3]Ln[E.sub.t] + [[epsilon].sub.t]


The required information is extracted from the available documentations in Steel Company. The research period is a ten-year time series from 2005-2014. In this research, OLS method and Eviews software are used to estimate the results after conduction of the required tests. In order to distinguish durability of the variables and to determine their collective degree, generalized Dicky-Fuller test (ADF) is used and F statistic is used to study the significance of the regression model and t statistic is applied to study the significance of independent variables coefficients.

Estimation of Model and Results Analysis:

Considering the results from Dicky-Fuller test generalized in table 1, variable of work force in durability level and two other variables are not durable. Since the results of durability test on remains indicate durability of waste in the surface, so that there is no worry in terms of fake regression. The results of production function are submitted in table 2.

R2 statistic indicates that the model is appropriate explanatory. Moreover, value of Durbin-Watson statistic is equal with 2/42. This statistic is between 1/7 and 2/5; indicate the autocorrelation in the model.

Thus, there is no autocorrelation problem in the regression.

The results indicate that the scrap iron ingot is an inelastic input in the manufacturing sector and distribution of steel ingots and it's the most important factor in the production of steel ingots and its cost is the final price of the molten iron.


Article history:

Received 25 September 2014

Received in revised form 26 October 2014

Accepted 25 November 2014

Available online 29 December 2014


Tohidi, N., 1985. evolutionary process of steel production in Iran and in the world, Amir Kabir Publication: Tehran.

Ranjbaran, M., 2001. study the production function of copper in Iran and its application in planning in this industry, Faculty of economics of Allameh Tabatabaei Uni.

Emadzadeh, E., K. Azarbaijani, G.H. Zamanian, 2001. Economies of scale: An Analysis of the Steel Company.

Atual Dar and Swapan Dasgupta, 1985. The estimation of production functions: the CRES and CDE approaches applied to US manufacturing data- a comparative study.

Bende- Nabende, A., J. Ford, S. Sen, J. Slater, 2002. Productivity analysis an Asia Economic cooperation region: A multi- country translog comparative analysis, pp: 1965-1997.

Christian, Bernini, Mama, F., A. Gardini, 2004. Quintile estimation of frontier production function. Empirical Economics, 29: 373-381.

Just Richard, E., David Ziberman, H. Eithan, 1988. Estimation of multi crop production function, American Journal of Agricultural Economics, 70: 729-732.

Khalili, A.M. (1 A cross section estimation of translog production: Jordanian manufacturing industry, Benchmarking An International Journal, 19: 340-357.

(1) Hossein Ostadi (Ph. D.) and (2) Majid Rezadee

(1) Department of Economic, Dehaghan Branch, Islamic Azad University, Isfahan, Iran.

(2) Department of Economic, Dehaghan Branch, Islamic Azad University, Isfahan, Iran.

Corresponding Author: Hossein Ostadi (Ph. D.), Department of Economic, Dehaghan Branch, Islamic Azad University, Isfahan, Iran.
Table 1: results of durability test for the model variables

Variable name   Levin, Lin and Chu test

                Coefficient   Probability

Capital         2/48          0/99
Work force      -5/08         0/004
Production      -2/80         Sep-00
Energy          -0/78         0/77
Raw materials   -0/91         0/73

Table 2: The results of the estimation model

Variable       Coefficient   T statistics   probability

Capital        0/38          2/99           0/003
Work force     0/86          11/10          0/001
Energy         0/43          2/82           0/036
Ingredients    0/95          4/89           0/004
R2 statistic   0/99          D-W            2/42
COPYRIGHT 2014 American-Eurasian Network for Scientific Information
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2014 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Ostadi, Hossein; Rezadee, Majid
Publication:Advances in Environmental Biology
Article Type:Report
Geographic Code:7IRAN
Date:Nov 1, 2014
Previous Article:The study of effect of corporate governance on performance of the enterprises listed in Tehran Stock and Exchange Organization (TSEO) (case study).
Next Article:Comparative study of productivity of state and private firms in the industries listed on TSE (2004-2012).

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters