Decomposing energy demand across BRIIC countries

- The analysis examines the structure and channels of changes in energy demand across productive sectors in BRIIC countries during 1995-2009.
- We evaluate substitution and output effects as well as the nature of firm productivity across these countries.
- Changes in energy demand arising from changes in (relative) price of energy is strongly dominated by substitution effects.
- The main drivers of economic performance and energy use over the sample period are economies of scale and factor accumulation.

Energy plays an important role within the production technology of fast emerging economies, such that firms' reaction to changes in energy prices provides useful information on factor productivity and factor intensity, as well as the likely outcome of energy policy initiatives, among other things. Drawing on duality theory, this paper decomposes changes in energy demand into substitution and output effects using annual sector-level production data for Brazil, Russia, India, Indonesia and China (BRIIC) for the period 1995-2009. Unlike previous studies, this study analyzed the economic properties of the underlying production technology. Results indicate that changes in energy demand are strongly dominated by substitution effects. More importantly, an intriguing finding that emerges from our analysis is the role of economies of scale and factor accumulation, as opposed to technical progress, in giving rise to the growth performance of sampled economies.