The Persistence of Energy Poverty: A Dynamic Probit Analysis

This paper contributes to the growing literature on energy poverty in developing countries. We use a dynamic probit estimator on three rounds of panel data from urban Ethiopia to estimate a model of the probability of being energy poor and to investigate the persistence of energy poverty. We also study the impact of energy price inflation, which Ethiopia experienced during 2007–2009, on energy use and energy poverty. We find strong evidence of state dependence in energy poverty. A household that is energy poor in one round is up to 16% more likely to be energy poor in the subsequent round. Dynamic probit regression results also suggest that an increase in the price of kerosene– the most important fuel for the urban poor– drives households into energy poverty. A fractional response estimator for panel data, which estimates the impact of energy prices on the proportion of energy obtained from clean sources, also supports the finding on the adverse impact of energy price inflation. Households responded to the significant rise in the price of kerosene by consuming a large amount of charcoal, which has been documented to have serious environmental, climate, and health consequences. Our results have significant implications for policies formulated to reduce energy poverty, conserve biomass resources, and promote energy transition in developing countries.