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The Relationship Between Energy Intensity and Income Levels: Forecasting Long Term Energy Demand in Asian Emerging Countries

This paper analyses long-term trends in energy intensity for ten Asian emerging countries to test for a non-monotonic relationship between energy intensity and income in our sample. We estimate energy demand functions during 1973 1990 using a quadratic function of log income. We find that the long-run coefficient on squared income is negative and significant, indicating a change in trend of energy intensity. We then use our estimates to evaluate a medium-term forecast of energy demand in the Asian countries, using both a log-linear and a quadratic model. We find that in medium to high income countries the quadratic model performs better than the log-linear, with an average error of 9% against 43% in 1995. For the region as a whole, the quadratic model appears more adequate with a forecast error of 16% against 28% in 1995. These results are consistent with a process of dematerialization, which occurs as a result of a reduction of resource use per unit of GDP once an economy passes some threshold level of GDP per capita.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Forecasting and Market Analysis; Coal – Markets and Prices; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
D4 -
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q34 - Natural Resources and Domestic and International Conflicts

Keywords: Energy intensity, Asian countries, GDP, Forecasting, Energy prices, panel data

DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No4-4

Published in Volume19, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.