The relationship between energy intensity and economic growth: New evidence from a multi-country multi-sectorial dataset

Abstract

This paper revisits the relationship between energy intensity and economic growth, using a flexible piecewise linear regression model. Based on a panel data set of 137 economies during 1990–2014, the analysis identifies a threshold effect of income growth on energy intensity change: although energy intensity is negatively correlated with income growth throughout the entire sample and study period, the declining rate significantly slows by about 25 percent after the level of per capita income reaches $5,000. Based on index decomposition, the analysis also finds that although structural change is important for intensity levels in all countries, the efficiency effect is more important in higher-income countries. The results suggest that one can expect to see relatively rapid reduction in energy intensity as the economies in today’s poor countries grow. However, when countries move beyond lower-middle-income levels, energy efficiency policies become far more critical for sustaining the rate of reduction in energy intensity.