Economic development, energy market integration and energy demand: Implications for East Asia

This paper uses a general method of moment regression technique to estimate an energy demand function with a dataset covering 71 countries between 1965 and 2010. The estimated results show that countries undergoing rapid economic growth may show relatively higher income and price elasticities in the long run. The higher income elasticities and lower price elasticity in the short run of rapid growing countries may impose pressure on energy demand in the domestic and international markets. Energy market integration can help to reduce such pressure by smoothing energy demand through lowering its income elasticity and creating a flexible energy market through increasing its price elasticity. These findings have important implications for forecasting energy demand and promoting international cooperation in East Asia.

▶ Higher income elasticity of rapid growing countries creates a shock to demand. ▶ Price elasticity of rapid growing countries will increase over time. ▶ EMI smoothes energy demand through lowering its income elasticity. ▶ EMI creates a flexible energy market through increasing its price elasticity. ▶ These findings have implications on energy outlooks and EMI.