Does the income elasticity of energy demand vary with the stages of economic development?

Abstract

This paper revisits the empirical evidence on the income elasticity of energy demand by investigating whether it varies with the level of economic development. We estimate the elasticity using mean-group type estimators for a sample of 111 countries spanning three decades. Our analysis reveals that the elasticity is not constant and tends to decline as countries become wealthier. As economies become more developed, their energy intensity falls, eventually reaching zero elasticity, indicating a decoupling between economic growth and energy demand. This finding underscores the importance of considering countries’ stages of economic development when making energy outlook projections.