The energy transition of the transition economies: An empirical analysis

- The paper analyzes the trend and determinants of industrial energy intensity in transition economies during 1998-2008.
- Less efficient countries improved efficiency more rapidly; cross-country variance in energy intensity declined over time.
- Industrial energy intensity declined largely because of improvement in energy efficiency rather than structural change.
- Income growth and rising energy prices are the main drivers of more efficient energy use.
- Trade induced specialization on more energy-intensive industries.

The aggregate manufacturing energy intensity of 28 countries in Eastern Europe and Central Asia had declined by 35% during 1998-2008. This study reveals a strong evidence of convergence: less efficient countries improved more rapidly and the cross-country variance in energy productivity narrowed over time. An index decomposition analysis indicates that energy intensities declined largely because of more efficient energy use rather than shifts from energy intensive to less intensive manufacturing activities. Income growth and energy price increases were the main drivers of the convergence. They dominated the impact of trade, which led to specialization in energy intensive industries.