The transition between energy efficient and energy inefficient states in Cameroon

- I investigate the transition between energy efficient/inefficient states.
- On the average, energy inefficient state persists more than energy efficient state.
- The duration of energy inefficient state is about twice as long as energy efficient state.
- Price, income and trade openness have distinct energy saving effect irrespective of state.
- A broad policy overhaul is needed to escape the energy inefficient state.

I use a two-state (energy efficient/inefficient) Markov-switching dynamic model to study energy efficiency in Cameroon in a novel manner, employing yearly data covering 1971 to 2012. I find that the duration of an energy inefficient state is about twice as long as an energy efficient state, mainly due to fuel subsidies, low income, high corruption, regulatory inefficiencies, poorly developed infrastructure and undeveloped markets. To escape from an energy inefficient state a broad policy overhaul is needed. Trade liberalization and related growth policies together with the removal of fuel subsidies are useful, but insufficient policy measures; the results suggest that they should be combined with structural policies, aiming at institutional structure and investment in infrastructure.