Energy Demand and Energy Efficiency in Developing Countries

Abstract

This paper investigates relative aggregate energy efficiency for a panel of 39 developing countries by econometrically estimating an energy-demand function (EDF) using the stochastic frontier analysis (SFA) approach to provide relative energy efficiency scores over the period 1989 to 2008. Energy efficiency is arguably difficult to define or even conceptualise with several interpretations in the literature but here it is based on an economists’ perspective of efficiency. Hence, the estimates of ‘true’ energy efficiency found in the paper using this approach approximate the economically efficient use of energy capturing both technical and allocative efficiency and the results confirm that energy intensity should not be considered as a de facto standard indicator of energy efficiency. While, by controlling for a range of socio-economic factors, the measurements of energy efficiency obtained by the analysis are deemed more appropriate and hence it is argued that this analysis should be undertaken to avoid potentially misleading advice to policy makers. This study contributes to the literature since it is, as far as is known, the first attempt to apply the benchmarking parametric stochastic frontier technique to econometrically estimate energy efficiency for a large panel of only developing counties around the world. Moreover, the results from such analysis are arguably particularly relevant in a world dominated by environmental concerns, especially in the aftermath of energy price increase as a result of the unrest in Ukraine.