Department of Economics Issn 1441-5429 Discussion Paper 06/05 Are Shocks to Energy Consumption Permanent or Temporary? Evidence from 182 Countries

This paper applies univariate and panel data unit root tests to annual panel data for 182 countries over the period 1979-2000 to examine the stationarity properties of per capita energy consumption. The univariate unit root test can only reject the unit root null for 29 per cent of the countries at the 10 per cent level or better without a trend and 37 per cent of the countries at the 10 per cent level or better with a trend. However, it is often argued that unit root tests have low power with short spans of data and therefore failure to reject the unit root null should be treated with caution. When we apply the panel data unit root test we find overwhelming evidence that energy consumption is stationary. We discuss the implications of these findings for econometric modeling and policy formulation.