On Income and Price Elasticities for Energy Demand: A Panel Data Study

Jiti Gao, Bin Peng () and Russell Smyth

No 28/20, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: Obtaining reliable cross-country estimates of the income and price elasticity of energy demand requires a panel data model that can simultaneously account for endogeneity, heterogeneity, nonstationarity and cross-sectional dependence. We propose such an integrated framework and apply it to a very large dataset of 65 countries over the period 1960-2016 recently assembled by Liddle and Huntington (2020). We find that while the elasticities of income and price are non-linear, the income elasticity is generally in the range 0.6 to 0.8 and the price elasticity in the range -0.1 to -0.3. We also find that the income elasticity has been declining since the 1990s, which broadly corresponds to increasing awareness of the negative externalities associated with burning fossil fuels associated with the Kyoto Protocol. From a policy perspective, that the income energy elasticity is less than one, and has been declining since the 1990s, bodes well for climate change mitigation because it suggests that energy intensity will fall with economic growth.

Keywords: elasticity; energy policy; panel data analysis (search for similar items in EconPapers)
JEL-codes: C23 O13 Q11 (search for similar items in EconPapers)
Pages: 37
Date: 2020
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (2)

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Journal Article: On income and price elasticities for energy demand: A panel data study (2021)
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