Exploring the energy intensity – per capita income nexus: evidence from middle-income and high-Income countries

Abstract

ABSTRACT Assessing changes in energy intensity has become increasingly important in recent years as economies strive toward greater environmental awareness and conservation while, at the same time, improving residents’ standard of living, through economic growth. This study explores the relationship between energy intensity and real per-capita income across the period 1981–2015 for 60 countries. We divide the sample into two segments: middle-income and high-income countries to better explore this relationship. The analysis uses a spline functional form which allows for greater flexibility to detect non-linear relationships. The results for middle-income countries show three distinct threshold levels of per capita income at which the direction of the relationship between energy intensity with per capita income changes. This suggests changes in energy intensity in middle-income countries occur due to changes in demand, fuel substitution and technological progress. The results with respect to the high-income countries do not indicate a threshold level with respect to their current level of income. This may be indicative that these countries have already passed their turning point prior to 1990 and are progressively reducing their energy intensity.