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

Author

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  • Jiti Gao
  • Bin peng
  • Russell Smyth
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.

Suggested Citation

  • Jiti Gao & Bin peng & Russell Smyth, 2020. "On Income and Price Elasticities for Energy Demand: A Panel Data Study," Monash Econometrics and Business Statistics Working Papers 28/20, Monash University, Department of Econometrics and Business Statistics.
    • Handle: RePEc:msh:ebswps:2020-28
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    Cited by:

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    3. Kettani, Maryème & Sanin, Maria Eugenia, 2024. "Energy consumption and energy poverty in Morocco," Energy Policy, Elsevier, vol. 185(C).
    4. Liddle, Brantley & Parker, Steven, 2022. "One more for the road: Reconsidering whether OECD gasoline income and price elasticities have changed over time," Energy Economics, Elsevier, vol. 114(C).
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    6. Brantley Liddle, 2022. "What Is the Temporal Path of the GDP Elasticity of Energy Consumption in OECD Countries? An Assessment of Previous Findings and New Evidence," Energies, MDPI, vol. 15(10), pages 1-12, May.
    7. Dr. Christian Lutz & Dr. Marc Ingo Wolter, 2021. "Wege zur Klimaneutralität bis 2045 – Politische Handlungsfelder," GWS Discussion Paper Series 21-4, GWS - Institute of Economic Structures Research.
    8. Eshagh Mansourkiaee & Hussein Moghaddam, 2022. "Econometric Analysis of Residential Sector Gas Demand Elasticities in Gas Exporting Countries," Energy and Environment Research, Canadian Center of Science and Education, vol. 11(2), pages 1-1, December.
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    11. Yicong Lin & Mingxuan Song, 2023. "Robust bootstrap inference for linear time-varying coefficient models: Some Monte Carlo evidence," Tinbergen Institute Discussion Papers 23-049/III, Tinbergen Institute.

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    More about this item

    Keywords

    elasticity; energy policy; panel data analysis;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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