Industry electricity price and output elasticities for high-income and middle-income countries

Abstract

Energy planning and climate policy require understanding long-run energy demand patterns. Electricity demand further is important because energy services derived from electricity typically do not have substitution possibilities from other fuels. By employing dynamic panel models, we estimate the long-run price and output elasticities of aggregate industrial electricity demand for high-income (mostly OECD) and middle-income (mostly non-OECD) countries. The unbalanced data span 1978–2016 and include 35 high-income countries and 30 middle-income countries. Our dynamic panel estimates address nonstationarity, heterogeneity, and cross-sectional dependence. We believe these are the first such panel estimates for middle-income/non-OECD countries and among the few such estimates for high-income/OECD countries to appear in the literature. The output elasticity for high-income countries typically was significantly below unity, around 0.5, and the price elasticity was around − 0.25 (and was statistically significant). For middle-income countries, the output elasticity was greater than unity and was likely significantly larger than the output elasticity for high-income countries, whereas the price elasticity was small and insignificant for middle-income countries.