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Estimating Energy Demand Elasticities for OECD Countries. A Dynamic Panel Data Approach

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    This paper estimates price and GDP/income elasticities of several energy goods in OECD countries over 1978 to 1999 by applying the one-step GMM estimation method suggested by Arellano and Bond (1991) to a panel data set. The energy demand is specified by a simple partial adjustment model. We find that compared to conventional OLS and Within estimator, the one-step GMM estimator gives more intuitive results in terms of sign and magnitude. The results show that for electricity, natural gas and gas oil demand, price elasticities are in general larger (in absolute value) while GDP/income elasticities are lower in the residential sector than in the industrial sector. This paper yields lower values for price elasticities compared to the results from earlier studies. The long-run GDP/income elasticities found in this paper, however, are quite similar to those found in earlier studies, and are around unity in general.

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    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp373.pdf
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    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 373.

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    Date of creation: Mar 2004
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    Handle: RePEc:ssb:dispap:373
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    1. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    2. Hunt, Lester & Manning, Neil, 1989. "Energy Price- and Income-Elasticities of Demand: Some Estimates for the UK Using the Cointegration Procedure," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(2), pages 183-93, May.
    3. Hashem, M. & Smith, R., 1993. "Alternative Approaches to Estimating Long-Run Energy Demand Elasticities: An Application to Asian Developing Countries," Cambridge Working Papers in Economics 9308, Faculty of Economics, University of Cambridge.
    4. Kouris, G., 1976. "The determinants of energy demand in the EEC area," Energy Policy, Elsevier, vol. 4(4), pages 343-355, December.
    5. Field, Barry C & Grebenstein, Charles, 1980. "Capital-Energy Substitution in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 207-12, May.
    6. Baltagi, Badi H. & Griffin, James M., 1983. "Gasoline demand in the OECD : An application of pooling and testing procedures," European Economic Review, Elsevier, vol. 22(2), pages 117-137, July.
    7. Kouris, George, 1983. "Energy consumption and economic activity in industrialized economies--a note," Energy Economics, Elsevier, vol. 5(3), pages 207-212, July.
    8. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, June.
    9. Pindyck, Robert S & Rotemberg, Julio J, 1983. "Dynamic Factor Demands and the Effects of Energy Price Shocks," American Economic Review, American Economic Association, vol. 73(5), pages 1066-79, December.
    10. Fiebig, Denzil G. & Seale, James & Theil, Henri, 1987. "The demand for energy : Evidence from a cross-country demand system," Energy Economics, Elsevier, vol. 9(3), pages 149-153, July.
    11. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    12. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
    13. 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.
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