Estimating energy efficiency using panel stochastic frontier approach: investigating its asymmetric impacts on employment in India

Abstract

Purpose This study aims to examine the asymmetric effects of energy efficiency on employment in India. Instead of relying on partial factor energy efficiency measures, this study uses a total factor energy efficiency (TFE) measure to estimate sector-specific energy efficiency for empirical investigation. Design/methodology/approach Multi-sectoral panel data for India from 2000 to 2014 are considered for empirical estimation. The sector-specific energy efficiency estimates (using the TFE measure) are estimated in the initial stage using the stochastic frontier approach (SFA). Then the asymmetric effect of energy efficiency on employment is investigated by using a non-linear panel autoregressive distributed lag model. Findings The estimates of energy efficiency display that there is not much significant change in the trend of average energy efficiency over the period. The negative and statistically significant value of the error-correction term confirms the existence of asymmetric cointegrating relationship between energy efficiency and employment in India. Moreover, in the empirical findings, the positive and negative shocks in energy efficiency provide a long-run asymmetric and short-run symmetric effect on employment in India. Originality/value Rather than depending on the absolute measure of energy efficiency (energy to output ratio), this study estimates the sector-specific energy efficiency for India using panel SFA, which provides a relative measure of energy efficiency. Moreover, to the best of the authors’ knowledge, it is the first empirical study investigating the asymmetric impact of energy efficiency on employment at an aggregate level in developing countries like India. By contrast, previous studies have either concentrated on the symmetric effect of energy efficiency on employment or primarily restricted to developed countries.