IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Electricity demand elasticities and temperature: Evidence from panel smooth transition regression with instrumental variable approach

  • Lee, Chien-Chiang
  • Chiu, Yi-Bin

This study applies a non-linear model, i.e. the recently developed panel smooth transition regression (PSTR) model, and takes into account the potential endogeneity biases to investigate the demand function of electricity for 24 OECD countries from the period 1978-2004. Our empirical results demonstrate that there is a strongly non-linear link among electricity consumption, real income, electricity price, and temperature, a result that is new to the literature. As real income rises, electricity consumption rapidly increases first, and after the level of real income exceeds approximately US$2500, its increasing rate turns slow down. An increase in electricity price has a negative or no influence on electricity consumption. Evidence of a U-shaped relationship between electricity consumption and temperature is supported, and the threshold value of temperature is approximately 53 °F, which is endogenously determined. Furthermore, the estimated elasticities of time dynamic indicate that electricity demand is income inelastic, price inelastic, and temperature inelastic. As time goes on, the absolute elasticities of electricity demand gradually decrease with respect to real GDP and electricity price, whereas they gradually increase with respect to temperature, suggesting that the impact of temperature on electricity demand is becoming more important in recent years.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0140988311001149
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 5 (September)
Pages: 896-902

as
in new window

Handle: RePEc:eee:eneeco:v:33:y:2011:i:5:p:896-902
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Bentzen, Jan & Engsted, Tom, 1993. "Short- and long-run elasticities in energy demand : A cointegration approach," Energy Economics, Elsevier, vol. 15(1), pages 9-16, January.
  2. Marie Bessec & Julien FOUQUAU, 2007. "The Non-linear Link between Electricity Consumption and Temperature in Europe: a Threshold Panel Approach," Working Papers 1636, Orleans Economic Laboratorys, University of Orleans.
  3. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  4. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  5. Jumbe, Charles B. L., 2004. "Cointegration and causality between electricity consumption and GDP: empirical evidence from Malawi," Energy Economics, Elsevier, vol. 26(1), pages 61-68, January.
  6. Ouédraogo, Idrissa M., 2010. "Electricity consumption and economic growth in Burkina Faso: A cointegration analysis," Energy Economics, Elsevier, vol. 32(3), pages 524-531, May.
  7. Ferguson, Ross & Wilkinson, William & Hill, Robert, 2000. "Electricity use and economic development," Energy Policy, Elsevier, vol. 28(13), pages 923-934, November.
  8. Pardo, Angel & Meneu, Vicente & Valor, Enric, 2002. "Temperature and seasonality influences on Spanish electricity load," Energy Economics, Elsevier, vol. 24(1), pages 55-70, January.
  9. Mozumder, Pallab & Marathe, Achla, 2007. "Causality relationship between electricity consumption and GDP in Bangladesh," Energy Policy, Elsevier, vol. 35(1), pages 395-402, January.
  10. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  11. I.O. Walker & Franz Wirl, 1993. "Irreversible Price-Induced Efficiency Improvements: Theory and Empirical Application to Road Transportation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 183-205.
  12. Hsing, Yu, 1994. "Estimation of residential demand for electricity with the cross-sectionally correlated and time-wise autoregressive model," Resource and Energy Economics, Elsevier, vol. 16(3), pages 255-263, August.
  13. Diks, C.G.H. & Panchenko, V., 2004. "A new statistic and practical guidelines for nonparametric Granger causality testing," CeNDEF Working Papers 04-11, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  14. Gilbert COLLETAZ & Christophe HURLIN, 2006. "Threshold Effects of the Public Capital Productivity : An International Panel Smooth Transition Approach," Working Papers 1669, Orleans Economic Laboratorys, University of Orleans.
  15. Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002. "Smooth Transition Autoregressive Models — A Survey Of Recent Developments," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 1-47.
  16. Al-Iriani, Mahmoud A., 2005. "Climate-related electricity demand-side management in oil-exporting countries--the case of the United Arab Emirates," Energy Policy, Elsevier, vol. 33(18), pages 2350-2360, December.
  17. Moral-Carcedo, Julian & Vicens-Otero, Jose, 2005. "Modelling the non-linear response of Spanish electricity demand to temperature variations," Energy Economics, Elsevier, vol. 27(3), pages 477-494, May.
  18. Bentzen, Jan & Engsted, Tom, 2001. "A revival of the autoregressive distributed lag model in estimating energy demand relationships," Energy, Elsevier, vol. 26(1), pages 45-55.
  19. Lee, Chien-Chiang & Chang, Chun-Ping, 2007. "Energy consumption and GDP revisited: A panel analysis of developed and developing countries," Energy Economics, Elsevier, vol. 29(6), pages 1206-1223, November.
  20. Sophie Béreau & Antonia Lopez Villavicencio & Valérie Mignon, 2008. "Nonlinear Adjustment of the Real Exchange Rate Towards its Equilibrium Value: a Panel Smooth Transition Error Correction Modelling," Working Papers 2008-23, CEPII research center.
  21. Lee, Chien-Chiang & Lee, Jun-De, 2009. "Energy prices, multiple structural breaks, and efficient market hypothesis," Applied Energy, Elsevier, vol. 86(4), pages 466-479, April.
  22. Koli Fatai & Les Oxley & Frank G. Scrimgeour, 2003. "Modeling and Forecasting the Demand for Electricity in New Zealand: A Comparison of Alternative Approaches," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-102.
  23. Galindo, Luis Miguel, 2005. "Short- and long-run demand for energy in Mexico: a cointegration approach," Energy Policy, Elsevier, vol. 33(9), pages 1179-1185, June.
  24. Mirasgedis, S. & Sarafidis, Y. & Georgopoulou, E. & Lalas, D.P. & Moschovits, M. & Karagiannis, F. & Papakonstantinou, D., 2006. "Models for mid-term electricity demand forecasting incorporating weather influences," Energy, Elsevier, vol. 31(2), pages 208-227.
  25. Fung, W.Y. & Lam, K.S. & Hung, W.T. & Pang, S.W. & Lee, Y.L., 2006. "Impact of urban temperature on energy consumption of Hong Kong," Energy, Elsevier, vol. 31(14), pages 2623-2637.
  26. Olatubi, Williams O. & Zhang, Yan, 2003. "A Dynamic Estimation of Total Energy Demand for the Southern States," The Review of Regional Studies, Southern Regional Science Association, vol. 33(2), pages 206-28.
  27. Andres Gonzalez & Timo Terasvirta & Dick van Dijk, 2005. "Panel Smooth Transition Regression Models," Research Paper Series 165, Quantitative Finance Research Centre, University of Technology, Sydney.
  28. Ruth, Matthias & Lin, Ai-Chen, 2006. "Regional energy demand and adaptations to climate change: Methodology and application to the state of Maryland, USA," Energy Policy, Elsevier, vol. 34(17), pages 2820-2833, November.
  29. Huang, Bwo-Nung & Hwang, M.J. & Yang, C.W., 2008. "Does more energy consumption bolster economic growth An application of the nonlinear threshold regression model," Energy Policy, Elsevier, vol. 36(2), pages 755-767, February.
  30. Gang Liu, 2004. "Estimating Energy Demand Elasticities for OECD Countries. A Dynamic Panel Data Approach," Discussion Papers 373, Research Department of Statistics Norway.
  31. Hesse, Dieter M & Tarkka, Helena, 1986. " The Demand for Capital, Labor and Energy in European Manufacturing Industry before and after the Oil Price Shocks," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(3), pages 529-46.
  32. Chien-Chiang Lee & Jun-De Lee, 2010. "A Panel Data Analysis of the Demand for Total Energy and Electricity in OECD Countries," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-24.
  33. Haas, Reinhard & Schipper, Lee, 1998. "Residential energy demand in OECD-countries and the role of irreversible efficiency improvements," Energy Economics, Elsevier, vol. 20(4), pages 421-442, September.
  34. Wirl, Franz, 1991. "Energy demand and consumer price expectations : An empirical investigation of the consequences from the recent oil price collapse," Resources and Energy, Elsevier, vol. 13(3), pages 241-262, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:33:y:2011:i:5:p:896-902. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.