Time-Varying Income and Price Elasticities for Energy Demand: Evidence from a Middle-Income (Primarily Non-OECD) Panel

18 Pages Posted: 28 Jun 2019 Last revised: 12 Nov 2020

See all articles by Brant Liddle

Brant Liddle

Independent

Russell Smyth

Monash University - Department of Economics

Xibin Zhang

Monash University

Date Written: June 26, 2019

Abstract

We estimate time-varying income and price elasticities for energy demand for a 26- country, middle-income (primarily non-OECD) balanced panel that spans 1996-2014. To do so, we employ a recently developed nonparametric local linear dummy estimation method that estimates the trend and coefficient functions in a highly non-linear way. We find that the price elasticity for energy demand is either insignificant or positive and small. While the income elasticity for energy demand behaves in a non-linear fashion over-time, it is always less than unity and is generally within 0.6-0.8. A GDP elasticity of less than one suggests that these middle-income countries are on the right-hand-side of an inverted-U energy intensity-GDP path that is consistent with the dematerialization process. Also, this finding suggests that energy intensity — but not energy consumption — in these countries will fall with economic growth. Hence, intensity-based targets may be met in a business-as-usual setting, but aggregate or per capita-based carbon emissions targets would likely require policy interventions.

Keywords: income elasticity, price elasticity, nonparametric panel data model, time-varying

JEL Classification: C14, O13, Q41, Q43, Q5

Suggested Citation

Liddle, Brant and Smyth, Russell and Zhang, Xibin, Time-Varying Income and Price Elasticities for Energy Demand: Evidence from a Middle-Income (Primarily Non-OECD) Panel (June 26, 2019). USAEE Working Paper No. 19-413, Energy Economics, Vol. 86, No. Feb, 2020, Available at SSRN: https://ssrn.com/abstract=3410511 or http://dx.doi.org/10.2139/ssrn.3410511

Russell Smyth

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia

Xibin Zhang

Monash University ( email )

900 Dandenong Road
Caulfield East, Victoria
Australia
61-3-99032130 (Phone)
61-3-99032007 (Fax)

HOME PAGE: http://users.monash.edu.au/~xzhang/

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