Effects of economic policy uncertainty on energy demand: evidence from 72 countries

ABSTRACT

This paper examines the effects of economic policy uncertainty on final energy consumption per capita in the panel dataset of 72 countries from 1960 to 2016. Economic policy uncertainty is captured by the World Uncertainty Indices (WUI). We firstly utilize the panel unit root tests with cross-sectional dependence to confirm the stationarity of the series. Secondly, we run various estimation techniques, such as fixed-effects, random-effects, and feasible generalized least squares. The results indicate that income is positively related to energy demand. However, a higher energy price decreases energy consumption, and the WUI is also negatively associated with energy consumption. These findings are robust to exclude the oil-exporter and the Organisation for Economic Co-operation and Development countries from the panel dataset. Finally, the Machado-Santos Silva quantile regression estimations show that the related effects of the income, energy price and the WUI on energy demand are valid at the different quantiles.

KEYWORDS:

• Energy consumption
• energy demand model
• economic policy uncertainty
• world uncertainty index
• oil-exporters
• OECD countries

Acknowledgments

The authors acknowledge the research grant from the Bahcesehir University Scientific Research Project (project #: BAP.2018-03.06).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Algeria, Argentina, Australia, Austria, Azerbaijan, Bangladesh, Belgium, Bolivia, Brazil, Canada, Chile, China, Colombia, Côte d’Ivoire, Croatia, the Czech Republic, Denmark, Dominic Republic, Ecuador, El Salvador, Finland, France, Germany, Ghana, Greece, Guatemala, Honduras, Hong Kong, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Korea Republic, Latvia, Lebanon, Lithuania, Malaysia, Mexico, Morocco, Netherlands, New Zealand, Nicaragua, Norway, Pakistan, Panama, Paraguay, Peru, the Philippines, Poland, Portugal, Romania, Saudi Arabia, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Tunisia, Turkey, the United Kingdom, the United States, and Venezuela.

2. Note that we also replace the indices of financial risks and political risks with the WUI. The related data are purchased from the PRS group. The related data are available from 1984 to 2016.

Additional information

Funding

This work was supported by the Bahcesehir University Scientific Research Project [BAP.2018-03.06].

Notes on contributors

Yaman Omer Erzurumlu

Dr Yaman Omer Erzurumlu received the B.S. degree in engineering management from Istanbul Technical University, Istanbul, Turkey, in 1998, and the PhD degree in finance from the University of Central Florida, Orlando, FL, USA, in 2006. His work experience includes financial consulting with different small and medium enterprises. He is currently with the faculty of the Engineering Management Department, Bahcesehir University, Istanbul. His research interests include mutual/pension fund management and governance, risk management, entrepreneurial finance, and innovation strategy. Dr Erzurumlu is also a Financial Management Association (FMA) member and a CFA charter holder.

Giray Gozgor

Dr Giray Gozgor is a Professor at the Istanbul Medeniyet University, Faculty of Political Sciences in Istanbul. He is also an affiliate of the CESifo Network. He has also worked at Ghent University and the University of California, Irvine, as a visiting scholar. He has been listed in the IDEAS/RePEc Economist Rankings (Top 1% Authors, Last 10 Years Publications). Dr Gozgor’s research interests include applied econometrics, climate change economics, financial economics, international economics, and political economy. Dr Gozgor published almost 100 papers in the Web of Science (SSCI and SCIE) indexed journals, including Annals of Tourism Research, Energy Economics, European Journal of Political Economy, Journal of Human Capital, Journal of Travel Research, and Public Choice.