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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 andprice 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, , vol. 30(3), pages 91-114, July.
    • Handle: RePEc:sae:enejou:v:30:y:2009:i:3:p:91-114
    DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No3-5
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    References listed on IDEAS

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    1. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    2. Dermot Gately & Hillard G. Huntington, 2002. "The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand," The Energy Journal, , vol. 23(1), pages 19-55, January.
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