Revisiting the income elasticity of energy consumption: an OECD & non-OECD country panel analysis

Crawford School of Public Policy | Centre for Climate Economics and Policy
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Event details

Seminar

Date & time

Friday 23 November 2018
11.30am–12.30pm

Venue

Seminar Room 2, JG Crawford Building 132, Lennox Crossing, ANU

Speaker

Brantley Liddle, National University of Singapore

Estimating the relationship between economic development and energy demand and determining whether that relationship changes as levels of development change have been popular questions in energy economics.

The current paper assembles a panel dataset of energy consumption and prices for 37 OECD and 41 non-OECD countries—a particularly large dataset considering the inclusion of country-specific energy prices. The unbalanced data spans 1960–2016, with the full 56 years of data for 17 countries and all countries having at least 18 years. Our dynamic panel estimates address non-stationarity, heterogeneity, and cross-sectional dependence. Most results suggest that the GDP elasticity is less than unity, so that energy intensity falls with economic growth, although that difference is not always significant at the 95 per cent level. The GDP elasticity appears to be similar for OECD and non-OECD countries. Also, there is no evidence that individual country estimates (for GDP or prices) vary systematically according to income. The price elasticity is larger (in absolute terms) for OECD than for non-OECD countries, and is typically insignificant for non-OECD countries. We uncover robust evidence that energy demand falls by more in recessions than it increases in growth periods for OECD countries. We find no asymmetries for prices and no GDP asymmetries for non-OECD countries. Lastly, we test whether the elasticities of today’s non-OECD countries are lower than the elasticities of OECD countries when they had similar GDP per capita levels. We find that current non-OECD countries have significantly lower GDP and price elasticities than OECD countries did when their incomes were similar. This runs counter to a previous study—perhaps an indication of the importance of our improved, expanded data coverage.

This seminar is convened by the Centre for Climate Economics and Policy (CCEP) and the Australian-German Energy Transition Hub.

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