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.