Abstract
This paper estimates the price and GDP/income elasticities of residential sector gas demand in the number of gas exporting countries over 1990–2019 by applying the homogenous OLS, TSLS and GMM methods to a panel data set. The energy demand is specified by a simple partial adjustment model. The study finds that gas exporting countries are nonresponsive to price changes either in a short or long-term period. Although the results for income elasticity are not conclusive in terms of magnitude and sign, they show that short-run income elasticity is inelastic and smaller than that of long-run. The study also provides results of heterogeneous 2SLS estimators for individual countries. Comparing these results with the results of the previous similar study using the ARDL bounds testing approach shows that while there is wide variability between individual estimations, both studies have found almost similar long-run income elasticity on average. For the long-run price elasticity, however, the ARDL model seems to give more intuitive results in terms of sign and magnitude.
Similar content being viewed by others
Data availability
The dataset used for this study is available from the corresponding author on reasonable request.
Notes
Gas exporting countries in this study refer to the following 12 countries: Algeria, Azerbaijan, Bolivia, Egypt, Iran, Kazakhstan, Malaysia, Norway, Peru, Russia, Trinidad and Tobago and Venezuela.
References
Addey K, Shaik S, Sakouvogui K (2019) Comparative sectoral price elasticities of U.S. energy demand. Cogent Econ Finance. https://doi.org/10.1080/23322039.2019.1682743
Alberini A, Gangs W, Velez-Lpez D (2011) Residential consumption of gas and electricity in the U.S.: the role of prices and income. Energy Econ 33(5):870–881. https://doi.org/10.1016/j.eneco.2011.01.015
Anderson TW, Hsiao C (1982a) Formulation and estimation of dynamic models using panel data. J Econometr 18:47–82
Anderson TW, Hsiao C (1982b) Formulation and estimation of dynamic models using panel data. J Econom 18(1):47–82. https://doi.org/10.1016/0304-4076(82)90095-1
Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev Econ Stud 58(2):277. https://doi.org/10.2307/2297968.JSTOR2297968
Auffhammer M, Rubin E (2018) Natural Gas Price Elasticities and Optimal Cost Recovery Under Consumer Heterogeneity: Evidence from 300 Million Natural Gas Bills. NBER Working Paper No. w24295, Available at SSRN: https://ssrn.com/abstract=3219791. Accessed on 22 Sept 2021
Bai J, Ng S (2005) A new look at panel stationarity tests and the PPP hypothesis. In: Andrews DWK, Stock JH (eds) Identification and Inference for Econometric Models: Essays in Honor of Thomas J. CambridgeUniversity Press, Rothenberg
Bai J, Ng S (2004) A PANIC Attack on Unit Roots and Cointegration. Econometrica 72(4):1127–1178
Babihuga R (2007) Macroeconomic and financial soundness indicators: an empirical investigation. (Working Papers No. 1–30). IMF. Retrieved from http://www.imf.org/external/pubs/ft/wp/2007/wp07115.pdf. Accessed 22 Sept 2021
Baltagi BH (2005) Econometric analysis of panel data, 3rd edn. Wiley, New York
Baltagi BH (2008) Econometric analysis of panel data. Wiley, Chichester
Baltagi BH, Griffin JM (1983) Gasoline demand in the OECD: an application of pooling and testing procedures. Eur Econ Rev 22:117–137
Baltagi BH, Griffin JM (1997) Pooled estimators v.s. their heterogeneous counterparts in the context of dynamic demand for gasoline. J Econometr 77:303–327
Baltagi BH, Griffin JM, Xiong W (2000) To pool or not to pool: homogeneous versus heterogeneous estimators applied to cigarette demand. Rev Econ Stat 82:117–126
Baltagi BH, Bresson G, Griffin JM, Pirotte A (2003) Homogeneous, heterogeneous or shrinkage estimators? Some empirical evidence from French regional gasoline consumption. Empir Econ 28(4):795–811. https://doi.org/10.1007/s00181-003-0161-9
Baltagi BH, Feng Q, Kao C (2012) A Lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model. J Econometr 170:164–177
Banerjee A, Marcellino M, Osbat C (2000) Some cautions on the use of panel methods for integrated series of macro-economic data. Econometr J 7(2):322–340
Bilgili F (2014) Long run elasticities of demand for natural gas: OECD panel data evidence. Energy Source Part b 9:334–341. https://doi.org/10.1080/15567249.2010.497793
Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econometr 87:115–143
Breusch TS, Pagan AR (1980) The Lagrange multiplier test and its applications to model specification tests in econometrics. Rev Econ Stud 47:239–253
Breitung J (2000) The Local Power of Some Unit Root Tests for Panel Data. In: Baltagi B (ed) Nonstationary Panels, Panel Cointegration, and Dynamic Panels, Advances in Econometrics, 15. Elsevier Science, pp 161–178
Burke PJ (2013) The national-level energy ladder and its carbon implications. Environ Dev Econ 18(4):484–503
Burke PJ, Yang H (2016) The price and income elasticities of natural gas demand: international evidence. Energy Econ 59:466–474
Chang Y (2002) Nonlinear IV unit root tests in panels with cross-sectional dependency. Journal of Econometrics 110:261–292
Choi I (2001) Unit root tests for panel data. J Int Money Finance 20:249–272
Dong K, Dong X, Sun R (2019) How did the price and income elasticities of natural gas demand in China evolve from 1999 to 2015? The role of natural gas price reform. Pet Sci 16:685–700. https://doi.org/10.1007/s12182-019-0320-z
Fisher RA (1932) Statistical Methods for Research Workers, 4th edn. Edinburgh, Oliver & Boyd
Garcia-Cerrutti M (2000) Estimating elasticities of residential energy demand from panel county data using dynamicrandom variables models with heteroskedastic and correlated error terms. Res Ene Econ 22(4):355–366
GECF Annual Statistical Bulletin (2021) Available online: https://www.gecf.org/_resources/files/flipbook/gecfasb2021/files/assets/common/downloads/publication.pdf. Accessed 15 Jan 2022
Hadri K (2000) Testing for unit roots in heterogeneous panel data. Econometrics J 3:148–161
Harris D, Leybourne S, McCabe B (2005) Panel Stationarity Tests for Purchasing Power Parity with Cross-Sectional Dependence. J Business Economic Statistics 23:395–409
Hausman JA (1978) Specification tests in econometrics. Econometrica 46:1251–1271
Havranek T, Kokes O (2015) Income elasticity of gasoline demand: a meta-analysis. Energy Economics 47:77–86
Houthakker H, Taylor L (1970) Consumer demand in the United States 1929–1970. Harvard University, Cambridge
Hsiao C (1986) Analysis of panel data. Econometric society monographs, No. 11. Cambridge University Press, Cambridge
Im KS, Pesaran MH, Shin Y (2003) Testing for unit roots in heterogeneous panels. J Econometr 115(1):53–74
Johansen S (1991) Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. Econometrica 59(6):1551–1580
Johansen S (1995) Likelihood-based Inference in Cointegrated Vector Autoregressive Models. Oxford University Press, Oxford
Judson R, Owen A (1999) Estimating dynamic panel data models: a guide for macroeconomists. Econ Lett 65:9–15. https://doi.org/10.1016/S0165-1765(99)00130-5
Kao C (1999) Spurious regression and residual-based tests for cointegration in panel data. J Econometr 90(1):1–44. https://doi.org/10.1016/S0304-4076(98)00023-2
Keen M (1986) Zero expenditures and the estimation of Engel curves. J Appl Economet 1:277–286
Kiviet JF (1995) On bias, inconsistency and efficiency of various estimators in dynamic panel data models. J Econometr 68:53–78
Kostakis I, Lolos S, Sardianou E (2021) Residential natural gas demand: assessing the evidence from Greece using pseudo-panels, 2012–2019. Energy Econ. https://doi.org/10.1016/j.eneco.2021.105301
Levin A, Lin CF, Chu CSJ (2002) Unit root test in panel data: asymptotic and finite sample propertiesî. J Econmetrics 108:1–24
Liu G (2004) Estimating energy demand elasticities for OECD countries. A dynamic panel data approach, discussion papers 373, Statistics Norway, Research Department
Lutkepohl H, Saikkonen P, Trenkler C (2001) Maximum eigenvalue versus trace tests for the cointegrating rank of a VAR process. Econometr J 4(2):287–310
Maddala GS, Wu S (1999) A comparative study of unit root tests with panel data and a new simple test. Oxford Bull Econ Stat 61:631–652
Maddala GS, Robert PT, Hongyi L, Frederick J (1997) Estimation of short-run and long-run elasticities of energy demand from panel data using shrinkage estimators. J Bus Econ Stat 15(1):90–100. https://doi.org/10.2307/1392078
Mansourkiaee E, Moghaddam H (2021) Econometric analysis of residential sector gas demand elasticities in gas exporting countries. Energy Environ Res. https://doi.org/10.5539/eer.v11n2p1
Moon HR, Perron B (2004a) Testing for a unit root in panels with dynamic factors. J Econometrics 122:81–126
Moon HR, Perron B (2004b) Asymptotic local power of pooled t-Ratio tests for unit roots in panels with fixed effects. Mimeo, University of Montreal
Nerlove ML, Balestra P (1966) Pooling cross-section and time-series data in the estimation of a dynamic model: the demand for natural gas. Econometrica 34:585–612
Nichele V, Robin JM (1995) Simulation of indirect tax reforms using pooled micro and macro French data. J Public Econ 56:225–244
Nilsen OB, Asche F, Tveteras R (2005) Energy demand elasticities estimated by shrinkage estimators: How much confidence can we have in them? In 25th USAEE/IAEE North American Conference, Denver. United States Association for Energy Economics (USAEE)
Pedroni P (2004) Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econ Theory 20(3):597–625
Pedroni P (1995) Panel cointegration: asymptotic and finite sample properties of pooled time series test with an application to the PPP hypothesis, Indiana University Working Papers in Economics, No. 95–013
Pedroni P (1997) Approximate critical values for cointegration tests in heterogeneous panels with multiple regressors
Pesaran MH (2004) General diagnostic tests for cross section dependence in panels, Cambridge working papers in economics, 435
Pesaran MH (2007) A simple panel unit root test in the presence of cross-section dependence. J Appl Econom 22(2):265–312
Phillips PCB, Perron P (1988) Testing for a unit root in time series regression. Biometrika 75(2):335–346. https://doi.org/10.2307/2336182
Pock M (2010) Gasoline demand in Europe: new insights. Energy Econ 32(1):54–62
Roodman D (2009) A note on the theme of too many instruments. Oxford Bull Econ Stat 71:135–158
Spiru A, Qin Z (2016) Investing on the Edge: Exploring the opportunities for diversification in frontier markets. In: Andrikopoulos P, Gregoriou G, Kallinterakis V (eds) Handbook of Frontier Markets: Evidence from Middle East NorthAfrica and International Comparative Studies. Elsevier, London
Strauss J, Taner Y (2003) Shortfalls of panel unit root testing. Econ Lett 81(3):309–313
Tatli H (2018) Multiple determinants of household natural gas demand: a panel data analysis in OECD countries. Asian Dev Policy Rev 6(4):243–253
Western B (1998) Causal heterogeneity in comparative research: a Bayesian hierarchical modelling approach. Am J Pol Sci 42:1233–1259
Westerlund J (2007) Testing for error correction in panel data. Oxford Bulletin of Economics and Statistics 69:709–748
Acknowledgements
I would like to thank the anonymous reviewers and the editor for their valuable feedbacks.
Funding
Not applicable.
Author information
Authors and Affiliations
Contributions
The authors read and approved the final manuscript.
Corresponding author
Ethics declarations
Conflict of interest
The author declares that he has no competing interests.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Mansourkiaee, E. Estimating energy demand elasticities for gas exporting countries: a dynamic panel data approach. SN Bus Econ 3, 1 (2023). https://doi.org/10.1007/s43546-022-00373-5
Received:
Accepted:
Published:
DOI: https://doi.org/10.1007/s43546-022-00373-5