The relationship between the structure of an economy and its energy intensity
University of Stellenbosch Business School
ENGLISH ABSTRACT: This study examined the relationship between economic structure and energy intensity in selected developed and developing countries of the world. A methodological and systematic approach was adopted to select the thirty-one countries explored in the study. Therefore, to answer the research questions posed in the study, the Granger Causality Technique and the Augmented Dickey-Fuller (ADF) method were used. This study discovered that the variables examined in the study showed variations. The variations emerged because of differences in methodologies and analytical frameworks adopted. Errorcorrection models were estimated and used to test for the direction of Granger causality. In the model, a high R2 was observed among the six variables (i.e. energy efficiency, per capita income, manufacturing, average energy prices, energy imports, technological developments), which invariably account for 60.8 percent of the variance in the energy intensity. Based on this, the unidirectional Granger causality runs from efficiency, per capita income and manufacturing to energy intensity. Hence, the price effects are relatively less significant in the causal chain. The result is at variance with the hypothesis that the structure of the economy does not determine its energy intensity. Nevertheless, a unidirectional Granger causality running from economic structure to energy intensity indicates that improvement in the economic structure would encourage a decline in energy intensity.