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Revisiting the Income Elasticity of Energy Consumption: A Heterogeneous, Common Factor, Dynamic OECD & non-OECD Country Panel Analysis

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  • Brantley Liddle and Hillard Huntington

Abstract

The current paper contributes to the literature on the relationship between economic development and energy demand by assembling a wide panel dataset of energy consumption and prices for 37 OECD and 41 non-OECD countries. The unbalanced data spans 1960-2016, with the full 56 years of data for 17 countries and all countries having at least 18 years. In addition, our dynamic panel estimates address nonstationarity, heterogeneity, and cross-sectional dependence. Most results suggest that the GDP elasticity is less than unity (e.g., 0.7) - i.e., energy intensity will fall with economic growth. Most evidence suggests that the GDP elasticity is similar for OECD and non-OECD countries, and for non-OECD countries, similar across income-bands. Also, there is no evidence that individual country elasticity 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 - indeed, it is typically insignificant for non-OECD countries.

Suggested Citation

  • Brantley Liddle and Hillard Huntington, 2020. "Revisiting the Income Elasticity of Energy Consumption: A Heterogeneous, Common Factor, Dynamic OECD & non-OECD Country Panel Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 207-230.
    • Handle: RePEc:aen:journl:ej41-3-liddle
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    Cited by:

    1. Yoosoon Chang & Yongok Choi & Chang Sik Kim & J. Isaac Miller & Joon Y. Park, 2024. "Common Trends and Country Specific Heterogeneities in Long-Run World Energy Consumption," CAMA Working Papers 2024-04, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Brantley Liddle, 2022. "What Is the Temporal Path of the GDP Elasticity of Energy Consumption in OECD Countries? An Assessment of Previous Findings and New Evidence," Energies, MDPI, vol. 15(10), pages 1-12, May.
    3. Blagrave, Patrick & Furceri, Davide, 2021. "The macroeconomic effects of electricity-sector privatization," Energy Economics, Elsevier, vol. 100(C).
    4. Xiaohui GONG & Bisharat Hussain CHANG & Xi CHEN & Kaiyang ZHONG, 2023. "Asymmetric Effects of Exchange Rates on Energy Demand in E7 Countries: New Evidence from Multiple Thresholds Nonlinear ARDL Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 125-142, June.
    5. Liddle, Brantley & Smyth, Russell & Zhang, Xibin, 2020. "Time-varying income and price elasticities for energy demand: Evidence from a middle-income panel," Energy Economics, Elsevier, vol. 86(C).
    6. Liddle, Brantley & Sadorsky, Perry, 2020. "How much do asymmetric changes in income and energy prices affect energy demand?," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).
    7. Lu, Zhou & Gozgor, Giray & Mahalik, Mantu Kumar & Padhan, Hemachandra & Yan, Cheng, 2022. "Welfare gains from international trade and renewable energy demand: Evidence from the OECD countries," Energy Economics, Elsevier, vol. 112(C).
    8. Zheng, Xinzhu & Wang, Ranran & Liddle, Brantley & Wen, Yuli & Lin, Lu & Wang, Lining, 2022. "Crude oil footprint in the rapidly changing world and implications from their income and price elasticities," Energy Policy, Elsevier, vol. 169(C).
    9. Liddle, Brantley & Parker, Steven, 2022. "One more for the road: Reconsidering whether OECD gasoline income and price elasticities have changed over time," Energy Economics, Elsevier, vol. 114(C).
    10. Rafael Alvarado & Cristian Ortiz & Lizeth Cuesta & Brayan Tillaguango, 2023. "Spillovers impact of institutional and economic factors in energy intensity," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(3), pages 1805-1823, June.
    11. Gorus, Muhammed Sehid & Karagol, Erdal Tanas, 2022. "Reactions of energy intensity, energy efficiency, and activity indexes to income and energy price changes: The panel data evidence from OECD countries," Energy, Elsevier, vol. 254(PA).
    12. Ravetti, Chiara & Cambini, Carlo, 2021. "Energy Use Beyond GDP: A Dynamic Panel Analysis with Different Development Indicators," Working Papers 10-2021, Copenhagen Business School, Department of Economics.
    13. Liddle, Brantley & Huntington, Hillard, 2021. "There’s Technology Improvement, but is there Economy-wide Energy Leapfrogging? A Country Panel Analysis," World Development, Elsevier, vol. 140(C).
    14. Liddle, Brantley & Parker, Steven & Hasanov, Fakhri, 2023. "Why has the OECD long-run GDP elasticity of economy-wide electricity demand declined? Because the electrification of energy services has saturated," Energy Economics, Elsevier, vol. 125(C).
    15. Awaworyi Churchill, Sefa & Inekwe, John & Ivanovski, Kris, 2021. "R&D expenditure and energy consumption in OECD nations," Energy Economics, Elsevier, vol. 100(C).
    16. Qing Wang & Kefeng Xiao & Zhou Lu, 2020. "Does Economic Policy Uncertainty Affect CO 2 Emissions? Empirical Evidence from the United States," Sustainability, MDPI, vol. 12(21), pages 1-11, November.
    17. Liddle, Brantley & Hasanov, Fakhri J. & Parker, Steven, 2022. "Your mileage may vary: Have road-fuel demand elasticities changed over time in middle-income countries?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 165(C), pages 38-53.
    18. Gao, Jiti & Peng, Bin & Smyth, Russell, 2021. "On income and price elasticities for energy demand: A panel data study," Energy Economics, Elsevier, vol. 96(C).
    19. Huntington, Hillard & Liddle, Brantley, 2022. "How energy prices shape OECD economic growth: Panel evidence from multiple decades," Energy Economics, Elsevier, vol. 111(C).
    20. Liddle, Brantley & Huntington, Hillard, 2021. "How prices, income, and weather shape household electricity demand in high-income and middle-income countries," Energy Economics, Elsevier, vol. 95(C).
    21. Liddle, Brantley, 2023. "Is timing everything? Assessing the evidence on whether energy/electricity demand elasticities are time-varying," Energy Economics, Elsevier, vol. 124(C).
    22. Brantley Liddle & Fakhri Hasanov, 2022. "Industry electricity price and output elasticities for high-income and middle-income countries," Empirical Economics, Springer, vol. 62(3), pages 1293-1319, March.
    23. Liddle, Brantley & Huntington, Hillard, 2020. "‘On the Road Again’: A 118 country panel analysis of gasoline and diesel demand," Transportation Research Part A: Policy and Practice, Elsevier, vol. 142(C), pages 151-167.
    24. Azhgaliyeva, Dina & Liu, Yang & Liddle, Brantley, 2020. "An empirical analysis of energy intensity and the role of policy instruments," Energy Policy, Elsevier, vol. 145(C).

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    JEL classification:

    • F0 - International Economics - - General

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