An Analysis of Energy Consumption in OECD Countries using Heterogeneous Dynamic Panel Models

Abstract

Abstract This study aimed to determine the relationship between energy consumption, country income, and energy price in 11 OECD countries and used dynamic panel data models. There are several studies on energy with dynamic panel data models in the literature, but the results are biased because they ignore the heterogeneity of countries and cross-sectional correlation. In this study, the dynamic panel data model was extended to allow heterogeneity and cross-sectional dependency, and it was estimated with an instrumental variable that is seemingly unrelated regression and dynamic common correlated effects mean group estimators. Based on the estimation results and the theory, it was concluded that one lag of energy consumption and per capita income positively affect energy consumption, whereas energy price affects energy consumption negatively. The results of the model, which is created by including the common responses of countries to shocks and at the same time heterogeneous features from each other, and considering the effect of past experiences, will ensure that environmental policies are determined more accurately.