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Fuelling Growth: What Drives Energy Demand in Developing Countries?

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  • Arthur van Benthem
  • Mattia Romani
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    Abstract

    This paper investigates the relationship between energy demand, economic growth and prices in 24 non-OECD countries and three sectors from 1978 - 2003. We estimate linear and non-linear income and price elasticities, using time fixed effects to control for unobserved dynamic effects such as technological change. We also test for asymmetric responses to price changes. The analysis leads to the following conclusions. First, the income elasticity of energy demand is high and increases with income, both on the country and the sector level. Second, energy demand is more responsive to end-use price than international oil price changes. Third, the price elasticity of energy demand increases with the price level. This result, driven by the residential and agricultural sector, is new to the literature for developing countries, and is consistent with the hypothesis of stronger responsiveness to high energy prices. Finally, we find that after including time fixed effects, allowing for price asymmetry adds little to the results.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume 30 (2009)
    Issue (Month): Number 3 ()
    Pages: 91-114

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    Handle: RePEc:aen:journl:2009v30-03-a05

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    Cited by:
    1. Wadud, Zia & Dey, Himadri S. & Kabir, Md. Ashfanoor & Khan, Shahidul I., 2011. "Modeling and forecasting natural gas demand in Bangladesh," Energy Policy, Elsevier, vol. 39(11), pages 7372-7380.
    2. Xavier Labandeira & Baltasar Manzano, 2012. "Some Economic Aspects of Energy Security," Working Papers 09-2012, Economics for Energy.
    3. Roger Fouquet, 2013. "Long Run Demand for Energy Services: the Role of Economic and Technological Development," Working Papers 2013-03, BC3.
    4. Moore, Alvon, 2011. "Demand elasticity of oil in Barbados," Energy Policy, Elsevier, vol. 39(6), pages 3515-3519, June.

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