Estimating energy demand elasticities for OECD countries. A dynamic panel data approach

Abstract

Abstract:\nThis paper estimates price and GDP/income elasticities of several energy goods in OECD countries\nover 1978 to 1999 by applying the one-step GMM estimation method suggested by Arellano and\nBond (1991) to a panel data set. The energy demand is specified by a simple partial adjustment\nmodel. We find that compared to conventional OLS and Within estimator, the one-step GMM\nestimator gives more intuitive results in terms of sign and magnitude. The results show that for\nelectricity, natural gas and gas oil demand, price elasticities are in general larger (in absolute value)\nwhile GDP/income elasticities are lower in the residential sector than in the industrial sector. This\npaper yields lower values for price elasticities compared to the results from earlier studies. The longrun\nGDP/income elasticities found in this paper, however, are quite similar to those found in earlier\nstudies, and are around unity in general.\nKeywords: Energy demand elasticities, Panel data, ADL models, Partial adjustment model, Onestep\nGMM estimator