Modeling world energy use efficiency, price, and GDP

ABSTRACT

This study attempts to predict interactions among the world energy use efficiency, world GDP per capita, and world energy price via developing VAR models. There exist significantly causal interactions among these variables up to lag three, which are explained between 78% and 99% determination ratios within the estimated restricted VAR models. The current use of world energy is found to be positively dependable on earlier years’ energy uses and so inefficiency in world’s energy use. Increases in earlier years’ world GDP per capita are found to increase the efficiency of world energy use. Both last years’ GDP per capita and world energy uses are found to increase in the current year’s world GDP per capita, and both last years’ GDP per capita and energy prices are found to increase in current year’s energy prices in cumulative terms. The interactions among the variables are validated by unit root tests for the variables.

KEYWORDS:

• Energy price
• energy efficiency
• forecasting
• VAR model
• world energy use
• world GDP

Notes

¹ Based on the International Energy Agency data definition “energy use refers to use of primary energy before transformation to other end-use fuels, which is equal to indigenous production plus imports and stock changes, minus exports and fuels supplied to ships and aircraft engaged in international transport” Tone of oil equivalent (TOE) is defined as unit representing energy generated by burning 7.4 barrels of oil (www.businessdictionary.com).