Are the income and price elasticities of economy-wide electricity demand in middle-income countries time-varying? Evidence from panels and individual countries

Abstract

Understanding the income/GDP and price elasticities of electricity demand is important for forecasting demand and evaluating the potential impact of energy/climate policies. Yet, there has been little work on this topic that focuses on countries outside the OECD. We employ a new database of cross-country real economy-wide electricity prices and apply a set of panel-based and time-series-based methods that together account for temporal heterogeneity and cross-sectional heterogeneity on a group of middle-income/rapidly growing countries. Both our panel results and the eight individual country analyses that applied structural time series modeling determined that both the income and price elasticities of economy-wide electricity demand are stable/effectively constant over time. In addition, our results suggested that the income elasticity of economy-wide electricity demand for these middle-income countries was on average 0.8. The price elasticity—which displayed more movement over time (at least in percentage terms)—was on average -0.09. The results of essentially constant income and price elasticities is analogous to recent findings focused on economy-wide energy demand in middle-income countries.