Intersectoral Production–Energy Consumption Linkages and Roles of Multifactor Productivity and Energy Inflation in Developed Countries

Abstract

The vast literature on the relationship between production activities and energy consumption in high-income countries mostly ignores intersectoral energy linkages. Therefore, this study investigates the cross impacts of per capita production in agriculture, industry, and services sectors on per capita energy consumption in these sectors, as well as the transport sector, using a panel dataset covering 19 developed countries’ 1990-2019 period. By also controlling the changes in multifactor productivity, energy prices, and population indicators, the study applies the CS-ARDL (cross-sectionally augmented autoregressive distributed lag) estimation procedure. The short-run and long-run estimations agreeably reveal the following key findings. Agricultural energy consumption is affected by neither its own production nor that of other sectors. Industrial energy consumption is positively associated with its own production but negatively associated with service production. Service energy consumption is increased by growing industrial production. Transport energy consumption is positively associated with agricultural and service production. Multifactor productivity change, which refers to technological progress, is positively associated with energy consumption in all sectors. Higher energy inflation decreases transport energy consumption but increases energy consumption in the industrial and services sectors. The study further discusses why and how developed countries should adjust overall energy efficiency targets to intersectoral energy linkages.