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Fuelling Growth: What Drives Energy Demand in Developing Countries?

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  • Arthur van Benthem
  • Mattia Romani

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.

Suggested Citation

  • Arthur van Benthem & Mattia Romani, 2009. "Fuelling Growth: What Drives Energy Demand in Developing Countries?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 91-114.
  • Handle: RePEc:aen:journl:2009v30-03-a05
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    Cited by:

    1. Raul Jimenez & Ariel Yépez-García, 2016. "Composition and Sensitivity of Residential Energy Consumption," IDB Publications (Working Papers) 95257, Inter-American Development Bank.
    2. Arthur A. van Benthem, 2015. "Energy Leapfrogging," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(1), pages 93-132.
    3. Fouquet, Roger, 2016. "Lessons from energy history for climate policy: technological change, demand and economic development," LSE Research Online Documents on Economics 67785, London School of Economics and Political Science, LSE Library.
    4. Burke, Paul J. & Csereklyei, Zsuzsanna, 2016. "Understanding the energy-GDP elasticity: A sectoral approach," Energy Economics, Elsevier, vol. 58(C), pages 199-210.
    5. Xavier Labandeira & Baltazar Manzano, 2012. "Some Economic Aspects of Energy Security," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 47-64.
    6. Sanoh, Aly & Kocaman, Ayse Selin & Kocal, Selcuk & Sherpa, Shaky & Modi, Vijay, 2014. "The economics of clean energy resource development and grid interconnection in Africa," Renewable Energy, Elsevier, vol. 62(C), pages 598-609.
    7. repec:ers:journl:v:xv:y:2012:i:sie:p:47-64 is not listed on IDEAS
    8. Selien De Schryder and Gert Peersman, 2015. "The U.S. Dollar Exchange Rate and the Demand for Oil," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    9. Adewuyi, Adeolu O., 2016. "Determinants of import demand for non-renewable energy (petroleum) products: Empirical evidence from Nigeria," Energy Policy, Elsevier, vol. 95(C), pages 73-93.
    10. Jobling, Andrew & Jamasb, Tooraj, 2017. "Price volatility and demand for oil: A comparative analysis of developed and developing countries," Economic Analysis and Policy, Elsevier, vol. 53(C), pages 96-113.
    11. Moore, Alvon, 2011. "Demand elasticity of oil in Barbados," Energy Policy, Elsevier, vol. 39(6), pages 3515-3519, June.
    12. Huang, Yongfu, 2014. "Drivers of rising global energy demand: The importance of spatial lag and error dependence," Energy, Elsevier, vol. 76(C), pages 254-263.
    13. Roger Fouquet, 2015. "Lessons from energy history for climate policy," GRI Working Papers 209, Grantham Research Institute on Climate Change and the Environment.
    14. 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.
    15. Roger Fouquet, 2013. "Long Run Demand for Energy Services: the Role of Economic and Technological Development," Working Papers 2013-03, BC3.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

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