Energy intensity determinants based on structure-oriented cointegration by embedding a knowledge box in a time series model: evidence from Iran.

Parisa Esmaeili,Meysam Rafei

doi:10.1007/s11356-021-16099-0

Abstract

Energy intensity reduction is an exigent issue for Iran, where energy consumption is so high. Therefore, finding effective policies to reduce energy intensity is essential. With this in mind, the impact of financial development, government investment, oil revenues, and trade openness on energy intensity is assessed in this study. We combined structural vector error correction model (SVECM) and directed acyclic graphs (DAG) technique to examine the relationships between study variables. The results of DAG prove that financial development, government investment, oil revenues, and trade openness influence the intensity of energy. Besides, the significant and long-run relationships among variables allowed us to apply SVECM. Impulse response functions and variance decomposition analysis indicate that government investment, oil revenues, and trade openness are negatively associated with the intensity of energy. Also, financial development positively influences energy intensity. Meanwhile, the impact of government investment is more significant than oil revenues, trade openness, and financial development impacts. So, government investment is the most effective policy regarding optimizing the consumption of energy and reducing energy intensity. We also advise policymakers to use oil revenues to increase government investment, enhance trade openness, and tax the private sector to improve the level of energy intensity.

Highlights

Energy, as one of the crucial inputs of production, which, along with other factors such as labor, capital, and raw materials, has a special place in the country’s economic development (Mirzaei & Bekri, 2017)
Impulse response functions and variance decomposition analysis indicate that government investment, oil revenues, and trade openness are negatively associated with the intensity of energy
We examine the impact of four economic variables, including financial development, trade openness, government investment, and oil revenues, on energy intensity during the years 1967 to 2017

Summary

Introduction

As one of the crucial inputs of production, which, along with other factors such as labor, capital, and raw materials, has a special place in the country’s economic development (Mirzaei & Bekri, 2017). The scarcity of energy resources in the world necessitates the efficient use of energy resources in the process of economic development (Pham et al, 2020; Zhu & Lin, 2020). To optimize and improve the methods of resource exploitation, conversion and transfer of energy, and compare the situation of countries regarding energy consumption and the effectiveness of this factor on economic development, macro indicators of energy economy such as energy intensity are used. Energy intensity is one of the strategic indicators in any country, which is used to examine the increase in energy efficiency both in terms of reducing energy dependence and in terms of climatic and environmental consequences of high energy consumption in the country (Pasierb et al., 1996; Sadorsky, 2013; Sun, 1998). Developed and developing countries are looking for factors that reduce their energy intensity and increase their energy efficiency

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Conclusion