RPR-2011-17 - ERIA

country studies generally lack price elasticity, which is significantly different fromthose in country-specific studies; (2) estimated energy consumptions in countryspecificstudies usually show different trends over different time periods, which isprobably due to the differences in country-specific characteristics.The above two phenomena raise an interesting question as to whether “EconomicDevelopment and Institutional Arrangements associated with Energy Market” — thetwo most important features specific to countries at different phases of developmentand income levels — can be identified as affecting the income- or own-price- energyconsumption relationship and changing the related elasticity estimation acrosscountries over time.The attempt to link economic development and institutional arrangementsassociated with energy market to energy demand is of interest to academics andpolicy makers. On one hand, the contradictive findings from the previous literatureask for further studies from the academic perspective to fuel the debate in public. Onthe other hand, policy makers need to know energy demand in the future and itsresistance to price volatility in the energy market in order to assist decision making.In practice, an accurate projection on energy demand is important for policy makersto secure energy supply, while understanding the response of energy demand to priceis essential for reducing market uncertainty.This study attempts to measure the income and price elasticities of energyconsumption and link them to a country’s economic development and institutionalarrangements related to Energy Market Integration (EMI), aiming to inform policymakers on the different roles EMI may play in changing a country’s energy demandwhen the country stays at different economic development stages. Implications fromthis study can be shed light on two policy issues in the East Asian Summit (EAS)region. The first policy issue is that many EAS countries are less developed and willindustrialize in the future, thus the projection on the relationship between energydemandand industrialization is critical to inform the potential energy supplychallenge. The second policy issue is about how to value the impact of EMI. Anincentive for EAS countries to participate in EMI is that regional integration mayhelp to secure the energy supply for sustainable economic growth and to reduceincome disparity in the region. However, to what extent this goal can be achieved13