ANALYZING ENERGY CONSUMPTION, ECONOMIC. Brant Liddle Centre for Strategic Economic Studies. Australia. September Overview

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1 ANALYZING ENERGY CONSUMPTION ECONOMIC GROWTH & URBANIZATION Bran Lddle Cenre for Sraegc Economc Sudes Vcora Unversy Ausrala Sepember 2010 Overvew Smulaneously consder Urbanzaon GDP & Energy consumpon Macro-level me seres/cross secon daa Panel conegraon panel DOLS & panel Granger-causaly S l R h Mddl & P Spl counres no Rch Mddle & Poor panels o examne sensvy o developmen 1

2 Background Oulne Energy consumpon & economc growh Urbanzaon & economc growh Urbanzaon & energy consumpon Model Daa Mehods & Pre-esng Resuls Man Resuls Long-run elascy esmaes Impac of developmen X-sec. varance Granger-causaly Conclusons Energy GDP Causaly Exensve & exponenal causaly leraure Over 101 paper from ; half publshed snce 2005; & 35 publshed n (Payne 2010) Leraure hasn reached consensus on resuls Bu has on mehods Use panel (TS-CS) daa & me seres mehods recenly developed for panels Panel conegraon FMOLS DOLS for panels & panel Granger-causaly Use mulvarae models Y K L E Conegraed; EY Ignored urbanzaon 2

3 Urbanzaon GDP GDP Urbanzaon Indusralzaon: rural agrculural labor force mgraes o urban manufacurng plans Urbanzaon GDP Economes of scale n nfrasrucure capal labor manageral resources Knowledge spllovers Urbanzaon-GDP a Ln GDP per cap 12 R 2 = Urbanzaon g row h rae Year-o-year GDP per capa g R 2 = Year-o-year urbanzaon growh rae Urbanzaon & GDP per capa negavely correlaed w/ share labor n agrculure Ub b 3

4 Urbanzaon-GDP Pahs 1800/ USA Japan Ln GDP per capa Asa Afrca Europe LAC W. Europe Japan LAC Asa Afrca USA Urbanzaon Urbanzaon-GDP Pahs y = 0.073x USA Ln GDP per capa Japan y = 0.077x y = 0.118x y = 0.031x W. Europe y=0.026x 026x W. Europe Japan USA Urbanzaon 4

5 Urbanzaon-GDP Causaly Bloom e al. (2008) 163 counres; 4-5 observaons per counry B-varae & no conegraon No causaly found Conegraon causaly sudes Halcoglu (2007) Resdenal elecrcy n Turkey Mshra e al. (2009) Nne Pacfc Island counres No shor-run causaly Urbanzaon Energy Urbanzaon leads o greaer energy consumpon Urbanzaon assocaed w/ GDP & energy s normal good Urbanzaon proxy for access o energy/elecrcy grd Urbanzaon leads o lower energy consumpon Ces benef from energy effcences Hgh-rse buldngs Publc rans Energy-free modes 5

6 Urban Densy vs. Urbanzaon Drvng per capa Yearly Km per capa Yearly Km per capa Inner cy densy (persons/hecare) Share lvng n urban areas Urbanzaon Energy Urbanzaon assocaed w/ ndusralzaon shfshf from agrculure o ndusry & servces (Jones 1991): Agrculure mechanzes Food consumers & producers spaally separaed Indusry more energy nensve han radonal agrculure/manufacurng Locaon of energy nensve secors depends on naural endowmen Energy nensy of echnologes vares across counres & me 6

7 7 Model Producon funcon w/ energy & urbanzaon hf f (M C k & K 1999) as a shf facor (McCoskey &Kao 1999): 1 L E K U y Where y s GDP for counry n me perod U s he percen of he populaon lvng n urban areas K s capal sock E s energy consumpon and L s he labor force. Model Producon funcon w/ energy & urbanzaon hf f (M C k & K 1999) as a shf facor (McCoskey &Kao 1999): 1 L E K U y U E K b a y * * * ln ln ln ln where * denoes per capa varables a & b are counry & me fxed effecs respecvely & s he error erm.

8 Mehods Panel un roo ess on all varables Panel conegraon ess from Kao & Pedron Pedron s panel dynamc ordnary leas squares (DOLS) for long-run elascy esmaes Panel Granger-causaly ess Relaonshp wh Developmen (EKC or Invered-U) Add GDP per capa squared (& hgher order) erms o regresson Nonlnear ransformaons of I(1) varables requres a dfferen (and undeveloped?) asympoc heory (Wagner 2008) Spl no developmen based panels (rch Spl no developmen-based panels (rch mddle poor) Consruc confdence nervals from DOLS esmaons o deermne f coeffcens are sgnfcanly dfferen 8

9 Daa Tme-seres cross-secon spannng for 79 counres Three panels: 22 rch 27 mddle & 30 poor counres IEA Real GDP per capa a PPP & oal fnal energy consumpon per capa World Bank Gross fxed capal formaon per capa & urbanzaon n percenage pons Pre-esng Resuls Panel un roo ess sugges ha GDP per capa physcal capal per capa energy consumpon per capa and urbanzaon are panel I(1) varables for all hree panels OLS n levels would be neffcen & spurous All four varables are panel conegraed for all hree panels There s a long-run equlbrum relaonshp among he varables 9

10 Long-Run Elascy Esmaes from DOLS E K Urban Panel Coeff. 1% C.I. Coeff. 1% C.I. Coeff. 1% C.I. Rch 0.13* [ ] 0.25* [ ] 0.52* [ ] Mddle 0.29* [ ] 0.24* [ ] 0.51* [ ] Poor 0.61* [ ] 0.22* [ ] -0.41* [ ] * P <0.001 Rch counres: K > E; Urban >> K Mddle counres: E > K; Urban >> E Poor counres: E >> K Urban < 0 overurbanzed Imporance of Developmen: Energy Consumpon Elas scy for Energy Poor ($1938) Mddle ($6368) Rch ($21585) 10

11 Imporance of Developmen: Physcal Capal Elasc cy for Physcal Capal Poor ($1938) Mddle ($6368) Rch ($21585) Imporance of Developmen: Urbanzaon cy for Urbanzaon Elas Poor ($1938) Mddle ($6368) Rch ($21585) 11

12 Varaon n Indvdual Counry Esmaes Panel Var. No. x-secs. w/ nsg. coeff. No. x-secs w/ sg. neg. coeff. Range & S. dev. sg. coeff. Rch E 5 6 [ ] 0.73 (22 K 3 1 [ ] 0.83] counres) Urban 1 8 [ ] 2.53 Mddle E 4 5 [ ] 0.57 (27) K 5 1 [ ] 0.20 Urban 5 10 [ ] 2.76 Poor E 8 6 [ ] 2.28 (30) K 4 3 [ ] 0.36 Urban 7 11 [ ] 8.10 Varaon n Indvdual Counry Esmaes Panel Var. No. x-secs. w/ nsg. coeff. No. x-secs w/ sg. neg. coeff. Range & S. dev. sg. coeff. Rch E 5 6 [ ] 0.73 (22 K 3 1 [ ] 0.22 counres) Urban 1 8 [ ] 2.53 Mddle E 4 5 [ ] 0.57 (27) K 5 1 [ ] 0.20 Urban 5 10 [ ] 2.76 Poor E 8 6 [ ] 2.28 (30) K 4 3 [ ] 0.36 Urban 7 11 [ ] 8.10 Boh urbanzaon & energy consumpon dsplay large varance 12

13 Varaon n Indvdual Counry Esmaes Panel Var. No. x-secs. w/ nsg. coeff. No. x-secs w/ sg. neg. coeff. Range & S. dev. sg. coeff. Rch E 5 6 [ ] 0.73 (22 K 3 1 [ ] 0.22 counres) Urban 1 8 [ ] 2.53 Mddle E 4 5 [ ] 0.57 (27) K 5 1 [ ] 0.20 Urban 5 10 [ ] 2.76 Poor E 8 6 [ ] 2.28 (30) K 4 3 [ ] 0.36 Urban 7 11 [ ] 8.10 Physcal capal s elascy s robus narrow & hghly smlar Panel Granger-Causaly All hree panels (shor-run) K GDP No causaly beween GDP & Urban GDP Energy Rch counres (shor-run) Energy GDP; K Energy; Urban Energy Mddle & Poor counres n long-run K Energy Urban GDP K GDP Urban Energy 13

14 Conclusons: Urbanzaon & Economc Growh GDP per capa energy consumpon per capa physcal capal per capa & urbanzaon hghly nerrelaed Conegraed & hghly muually causal Urbanzaon s mporan o & assocaed w/ economc growh Urbanzaon does no drecly cause economc growh Poor counres are over-urbanzed Conclusons: Cross-secon Varance Urbanzaon-developmen & energydevelopmen relaonshp vares consderably across counres Imporance of physcal capa o economc growh hghly robus & smlar across panels/counres 14

15 Conclusons: Role of Developmen Imporance of energy consumpon o economc growh declnes w/ developmen Physcal capal more mporan for economc growh han energy consumpon for rch counres Energy consumpon more mporan for economc growh han physcal capal for mddle & poor counres Conclusons: Mehods To deermne developmen s nfluence spl no panels accordng o developmen level Avod nonlnear ransformaons of I(1) varables Panel-based model of developmen assumes hsory maers & ha developmen s no a connually smooh process where all counres follow same pah 15