WTO Accession, Foreign Direct Investment and International Trade
Advances in Chinese Economic Studies series
Edited by Chunlai Chen
Chapter 11: Linking Economic Development with Demand for Energy: A Discontinuous Estimation of Energy Demand Elasticity
Ligang Song and Yu Sheng
Ligang Song and Yu Sheng INTRODUCTION It is generally accepted that there is a strong causal relationship between national income and energy demand, with the price of energy products playing an important role in affecting the relationship, as shown in many studies examining the relationship between economic growth and energy consumption (Taylor, 1975; Bohi and Zimmerman, 1984; Dahl and Sterner, 1991; Brenton, 1997; Ferguson, Wilkinson and Hill 2000). Despite the existence of significant income and price elasticities found in these studies, there appears to be a lack of general agreement on representative values for the income and price elasticities of energy products, and in particular on why the magnitude of these elasticities may differ across countries with disparate incomes or over time for the same country. In a comprehensive survey of quantitative studies on country-specific energy consumption, Dahl (1992) showed that the demand for energy was price inelastic and slightly income elastic at the aggregate level but there was no clear-cut evidence that the developing world’s energy demand is less price elastic or more income elastic than for the industrial world. Brenton (1997) and Ferguson et al. (2000) used some cross-country energy consumption data to estimate different energy demand equations respectively, and found that the own-price elasticity for energy is higher in the poor than in the rich countries, and income elasticity for energy declines with the rising of income. To explain the above phenomenon, some recent studies, including Maddala et al. (1997), Garcia-Cerrutti (2000), Lowe (2003), Bernstein and Griffin...
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