There’s Technology Improvement, but is there Economy-wide Energy Leapfrogging? A Country Panel Analysis

Abstract

Energy leapfrogging may have critical implications for a world that seeks to reduce its fossil fuel use and greenhouse gas emissions, and in which most future economic growth will be concentrated in rapidly growing, industrializing countries rather than in more mature economies. The current paper explores whether country-level data supports the conclusion that developing countries have lower energy intensities today than mature economies had in decades past when those mature economies had per capita income levels similar to those of developing countries now. We employ a broad sample of aggregate energy consumption, energy prices, and economic growth observations for 26/27 OECD and 34 non-OECD countries, spanning 1960-2016. Our price dataset is particularly novel in two ways: it includes (1) early industrializer-OECD observations from the 1960s and 1970s, and (2) a high number of recent (2007-2016) non-OECD observations. And thus, importantly, our work differs from previous estimates in the temporal comparison between mature and industrializing groups. Our study finds empirical support for energy leapfrogging, expressed as the energy intensity of income growth; we show that industrializing economies are adopting less energy-intensive, and by implication less polluting, economic activities when their income levels reach the same per-capita GDP levels as the more mature OECD countries did in previous decades. Importantly, our results depend upon (i) the controls placed on income levels to represent comparable stages of economic development, and (ii) the rules defining the temporal dimension for technology transfer. Our results have significant implications for researchers and policy analysts interested in economic development: those results support previous analysis, concluding not only that energy technologies are being transferred internationally, but that technologies are reducing the energy, and by implication the climate footprint of many developing countries. For example, a back-of-the-envelope calculation suggested that energy leapfrogging lowered the growth rate of energy consumption by about 35% in non-OECD countries.

Keywords: economic development, developing countries, technology transfer, energy use, energy intensity, leapfrogging

JEL Classification: C23, O13, Q4, Q5