Do urbanization and industrialization affect energy intensity in developing countries?

Against a backdrop of concerns about climate change, peak oil, and energy security issues, reducing energy intensity is often advocated as a way to at least partially mitigate these impacts. This study uses recently developed heterogeneous panel regression techniques like mean group estimators and common correlated effects estimators to model the impact that income, urbanization and industrialization has on energy intensity for a panel of 76 developing countries. In the long-run, a 1% increase in income reduces energy intensity by −0.45% to −0.35%. Long-run industrialization elasticities are in the range 0.07 to 0.12. The impact of urbanization on energy intensity is mixed. In specifications where the estimated coefficient on urbanization is statistically significant, it is slightly larger than unity. The implications of these results for energy policy are discussed.