Decomposing energy demand across BRIIC countries

Measuring the energy input substitution and output effects of energy price changes and the implications for the environment

“…In general, we observe that the substitution effect from the multilevel modelling is bigger than that of the iSUR in absolute terms, but smaller than the estimates reported in Adetutu et al (2016). One possible explanation why our results differ from that of Adetutu et al (2016) could be the choice of analysis and sampled countries as they decomposed energy demand for individual BRIIC countries, while this paper decomposed energy demand for a panel of industries across European countries. Arguably, industries in fast emerging economies such as BRIIC are likely to be more sensitive to changes in energy price as they exhibit a very strong substitution between energy and other inputs as demonstrated by Adetutu et al (2016).…”

“…One possible explanation why our results differ from that of Adetutu et al (2016) could be the choice of analysis and sampled countries as they decomposed energy demand for individual BRIIC countries, while this paper decomposed energy demand for a panel of industries across European countries. Arguably, industries in fast emerging economies such as BRIIC are likely to be more sensitive to changes in energy price as they exhibit a very strong substitution between energy and other inputs as demonstrated by Adetutu et al (2016). For the output effect (the relevance lies in the sign not the magnitude), the results based on the estimates of iSUR and the multilevel model differs by sign for the whole, manufacturing and service sectors.…”

“…the AES, our estimates are closer to Adetutu et al (2016) and for the MES; our estimates are similar to Haller and Hyland (2014).…”

“…However, notwithstanding the intuition behind the estimates of the output effect, the estimates are generally not different from zero, which is similar to Adetutu et al (2016). With this outcome, it is logical to conclude that the output effect is less likely to have a significant implication on carbon reduction via reduction in energy use.…”

“…The author further highlights the importance of the output effect in terms of the difference between the compensated and uncompensated elasticities. More recently, Adetutu et al (2016) empirically investigate the substitution and output effects of changes in energy input demand for the individual BRIIC countries. Their findings suggest that the substitution effect dominates the output effect in the BRIIC countries with estimated elasticities ranged from -0.007 to -0.020 for the period under consideration.…”