Socio-Economic Determinants of Energy Intensity: Comparative Evidence from Developed and Developing Countries

Abstract

The study objective is to examine the determinants of energy intensity across developed and developing countries from 1990 to 2023. For this purpose, the study employs the system Generalized Method of Moments (GMM). Among the socioeconomic determinants of energy intensity, GDP, FDI, and education reduce energy intensity in developed and developing countries. The education variable appeared to be most influential in reducing energy intensity, particularly in developed countries, followed by FDI and GDP growth. These variables reduce energy intensity, which is driven by the shift towards less energy-intensive sectors and enhancement in energy efficiency. The factors that increase energy intensity include population growth, urbanization, financial development, and currency exchange rate. The strongest driver of energy intensity is urbanization, observed in the panel of developed countries.  Energy intensity increases due to more demand for goods and services induced by higher population and urbanization, besides the improvement of the financial sector which facilitates purchases of energy-intensive goods. Therefore, it is desirable to implement energy-efficient policies to achieve the economic growth target with energy sustainability.  However, the variables of access to electricity, trade openness, and capital-to-labor diverge in their impact across the panel of developed and developing countries. Understanding the determinants of energy intensity is crucial because it directly influences how effectively economies utilize energy resources. By identifying and addressing the socio-economic factors that drive energy intensity, policymakers can design targeted strategies to optimize energy use, reduce environmental impacts, and align with global energy sustainability goals. This knowledge is vital for balancing economic growth with environmental preservation, ensuring a sustainable energy future.