THE RELATIONSHIP BETWEEN ENERGY INTENSITY AND INCOME LEVELS - FORECASTING LONG-TERM ENERGY DEMAND IN ASIAN EMERGING COUNTRIES

This paper analyses long-term trends in energy intensity for ten Asian emerging countries to test for a non-monotonic relationship between e nergy intensity and income in our sample. We estimate energy demand fu nctions during 1973-1990 using a quadratic function of log income. We find that the long-run coefficient on squared income is negative and s ignificant, indicating a change in trend of energy intensity. We then use our estimates to evaluate a medium-term forecast of energy demand in the Asian countries, using both a log-linear and a quadratic model. We find that in medium to high income countries the quadratic model p erforms better than the log-linear, with an average error of 9% agains t 43% in 1995. For the region as a whole, the quadratic model appears more adequate with a forecast error of 16% against 28% in 1995. These results are consistent with a process of dematerialization, which occu rs as a result of a reduction of resource use per unit of GDP once an economy passes some threshold level of GDP per capita.