Underlying causal factors of the European Union energy intensity: Econometric evidence

Abstract

The aim of the research is to determine the main factors that define the level of energy intensity in the countries of the European Union. The research was conducted by estimation of six baseline and six auxiliary regressions, with and without time lags, in form of one-way fixed and random effects error component models, on different unbalanced panel data samples covering the period 1995-2015. The obtained baseline regressions results generate three sets of findings. The first set consists of extremely robust findings relating to the positive influence of gross fixed capital formation and industrial gross value added, and negative effects of real per capita gross domestic product and oil products retail price. These variables are statistically significant in all 36 baseline empirical models. The second set of results consists of quite robust findings relating to insignificant influence of foreign direct investment and negative influence of coal price. According to the results, it cannot be confirm the hypothesis of energy-saving technology transfer via foreign direct investments in European Union member states. The third set of results shows that the research has failed to generate any robust findings for economic openness (import ratio), urbanization and natural gas price, which means that the effect of these determinants on energy intensity in European Union member states is unspecified. Finally, auxiliary regressions estimation results show that changes in the sectorial composition within the European Union member states' economies have not enhanced energy-saving technological transfer via foreign direct investments.