Estimation of Total Energy Consumption in Jordan 1980‐1999: Evidence From Cointegration and Stock

Abstract

The purpose of this study is to estimate the long‐run elasticities of the demand (consumption) for total energy in Jordan for the 1980‐1999 period. Assuming a simple linear relationship, in order to estimates the elasticities of a simple long‐run demand equation, we then employ a procedure just recently prescribed by Stock‐Watson (1993) known as Dynamic OLS (DOLS). The DOLS procedure allows for co‐integrated variables as well as tackling the problem of simultaneity amongst the regressors. Furthermore, Stock and Watson showed that DOLS is more favorable, particularly in small size samples, compared to a number of alternative estimators of longrun parameters, including those proposed by Engle‐Granger (1987), Johansen (1988) and error correction model. The analysis provided in this paper showed that the income elasticity of final energy consumption is 1.15, which indicated that the economic growth is accompanied by proportional increase in energy consumption. The responsiveness of energy consumption to price change is ‐1.14 suggesting that taxes on their own are likely to achieve government goals for energy conservation.