Are Fluctuations in Electricity Consumption Permanent or Transitory? Evidence from a Nonlinear Unit Root Test in High-income OECD Countries

Abstract

For the first time, this article investigates the stationary properties of per capita electricity consumption by employing a nonlinear unit root test for 23 high-income Organisation for Economic Co-operation and Development (OECD) countries covering the period 1960–2005. Empirical results demonstrate that per capita electricity consumption follows a nonlinear behavior in 70% of the OECD countries. By using the Lagrange Multiplier and Kruse’s (2011) unit root test, we find that the electricity consumption is a non-stationary process for 12 countries. In addition, we conclude that any shock to electricity consumption is likely to be permanent and energy policies will have a permanent impact. On the other hand, electricity consumption is a stationary process for the rest of the 19 countries which means that energy demand management policies designed to shrink energy consumption will have temporary effects as energy consumption will return to its trend path. As a policy implication, the linearity or nonlinearity of data should be investigated before testing the unit root test hypothesis in the studies to avoid doubtful results.

Keywords:

• electricity consumption
• OECD
• stationarity
• unit root