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The Journal of Energy and Development
The Journal of Energy and Development
AND DEVELOPMENT
Copyright 2022
SEARCHING FOR LONG EQUILIBRIUM
BEHAVIORS INTO THE STOCHASTIC FEATURES
OF ELECTRICITY SERIES FROM THE WORLD’S
LARGEST PRODUCERS
Introduction
*Nicolas Schneider is currently a Ph.D. doctoral student in the Department of Earth & Environment
at Boston University (BU), Massachusetts (U.S.). A native of France, Nicolas Schneider holds a B.A.
in Economics from Grenoble-Alps University (France), a M.D. in Development Economics & Applied
Econometrics at Paris Sorbonne University (France), and a M.Sc. in Environmental Economics &
Climate Change from the London School of Economics & Political Science (U.K.), with a major in
resource extraction modelling, energy economics and environmental policy. As part of his doctoral
research, Nicolas combines climate econometrics tools with Computable General Equilibrium
frameworks to model the effect of extreme weather shocks on various socioeconomic outcomes,
including energy demand and crop yields in the United States. Nicolas published several research
articles in peer-reviewed journals, including Waste Management, Applied Energy, Environmental
Research Letters, Environmental Impact Assessment Review, and the International Review of
Environmental and Resource Economics, to name a few. Nicolas is also a Teaching Fellow in the Earth
& Environment Department and was recently appointed co-chair of the Workshops and Panels
Working Group of the BU Science Policy Group in Boston. (continued)
International Energy Agency, highlighted that “Energy is at the heart of the prob-
lem – and so must form the core of the solution.”2 But to implement changes in
future energy paths, an in-depth understanding of today’s energy situation and poli-
cies are required.
It becomes unlikely that the energy sector, in general, and the ways through
which power is generated and supplied to meet demand, in particular, can be
spared from structurally comprehensive reforms in the future. Thus, shifting from
a power generation system with a high-carbon content to electricity production
based on renewable resources is necessary to curb harmful emissions and mitigate
the social cost of carbon. Put into perspective, the sustainability issue facing devel-
oped countries, as well as emerging economies, is how to reconcile the need to
provide secure and affordable electricity supplies to the industrial and domestic
sectors while avoiding adverse externalities.3 In this context, both renewable and
nuclear sources emerge as a means of providing low-carbon alternatives to power
Mihaela Simionescu (Bratu), who holds a Doctorate in Economics (Cybernetics and Statistics) and a
Habilitation in Economics, is a Ph.D. Supervisor in Economics and Scientific Researcher 2nd degree at
the Institute for Economic Forecasting (Romania). The author is also an Associate Researcher at Prague
Institute for Qualification Enhancement, Center for Macroeconomic Modelling of the Romanian
Academy, and a fellow at the Global Labour Organization. Dr. Simionescu is an Associate Professor at
the University of Bucharest, Faculty of Administration and Business, and at Bucharest University of
Economics, Faculty of Economic Cybernetics, Statistics and Informatics. Her prior positions included:
Full Professor and Principal Investigator at University of Social Sciences, Lodz (Poland); Full Professor
at Mykolas Romeris University of Vilnius (Lithuania); Visiting Researcher at the Institute for Research
on Population and Social Policies in Rome (Italy) and at the Romanian Academy, Iasi Branch,
Gheorghe Zane Institute for Economic and Social Research; and Visiting Professor at the Pan-European
University (Slovakia), Rzeszow University of Technology (Poland), and North-Caucasus Federal
University (Russia). In addition to numerous prizes and memberships, the author is a prolific writer with
her works appearing in Energies, Journal of Competitiveness, Economics & Sociology, Technological
Forecasting and Social Change, and Journal of Economics and Development Studies, to name a few.
Wadim Strielkowski is a Research Fellow at the Department of Trade and Finance, Faculty of
Economics and Management, Czech University of Life Sciences Prague (Czech Republic), Senior
Researcher at the Cambridge Institute for Advanced Studies (U.K.), and a Visiting Professor at the
University of California, Berkeley (U.S.). Previously, the author held the following positions: Research
Associate at the University of Cambridge (U.K.); Assistant Professor at Charles University in Prague
(Czech Republic); Research Fellow at the University of Nottingham (U.K.); and Senior Researcher at
the Czech Academy of Sciences. He also worked as a Vice-Chancellor of the Prague University of
Economics and Management and as a Deputy Director for PR and Marketing at CERGE-EI Prague.
The author received his master’s degrees in economics from Charles University in Prague and
University of Siena (Italy) and his Ph.D. degrees from Charles University in Prague and the National
University of Ireland, Galway (Republic of Ireland). Dr. Strielkowski is a productive writer with over
250 publications in world-leading journals, his illustrious works have been published in Nature and
Science, as a sampling.
The authors would like to acknowledge the comments from the editor and the anonymous referees;
however, the usual disclaimer applies.
ELECTRICITY & THE WORLD’S LARGEST PRODUCERS 225
generation based on fossil fuels without boosting the electricity dependence on for-
eign suppliers and trade agreements.4 Additionally, while industrial and power
structures present dynamic interconnections, energy and power-dependent indus-
tries tend to be more carbon-intensive because electricity also operates as a produc-
tion input, along with all other individual production factors (gross fixed capital
formation, labor force).5 Conversely, the recent endorsement of climate protection
measures targeting the most polluting sectors will undoubtedly constrain govern-
ments to reframe how electricity is produced by oligopolistic-structured sectors
and consumed along each stage of a supply chain involving increasing digitaliza-
tion, Artificial Intelligence (AI), and power-dependent applications. This is where
low-carbon electricity generation systems are expected to find their contribution.
The interest in assessing the stationary properties of electricity consumption
series is due to the far-reaching policy implications that unit root testing results
confer. From a statistical standpoint, a time-series is said to be stationary if its sta-
tistical properties (mean, variance, and autocorrelation) are constant over time. In a
nutshell, if a series is stationary, one can predict that its properties will remain
constant in the future, which is highly useful when it comes to forecasting shocks
and designing policy responses. In other words, a process is considered to be sta-
tionary if its probability distribution is unchanged as the number of consecutive
observations rises. This concept does apply to stochastic processes for which the
data generation process does not vary over time. Naturally, one distinguishes
between strict and weak stationarity (or stationarity), in the sense that the former
refers to a stochastic equilibrium process yt with similar realizations and distribu-
tions over different time intervals; whereas the latter designates processes for
which the covariance between any two observations depends only on the length of
time separating the observations.6 While a weakly stationary process can also indi-
cate covariance stationary or wide-sense stationary time-series, one can measure
how the concept of stationarity has played an important role in shaping the theory
of stochastic processes and time-series analysis. From an empirical standpoint, if
electricity use is found to be stationary, then any shock affecting a country’s power
trends (i.e., emergence of a backstop technology reducing the marginal cost of a
competitive resource, carbon tax set on producers, climate agreements endorsed
internationally with limited carbon leakages) will be temporary, and electricity
consumption is expected to shortly return to its normal and long-run equilibrium
pace.7 Conversely, in the presence of a unit root, a shock occurrence on power use
(i.e., electricity price shock) is more likely to have permanent effects, indicating
that any shock (i.e., input price volatility) will be transmitted back to other macro-
economic variables.8 Regarding the world’s largest electricity producers, given that
these countries—to varying degrees— are shifting toward a low-carbon electricity
sector to meet their climate strategies for 2050 in addition to adopting emissions
reducing policies, a comprehensive understanding of these properties is required to
avoid counter-expected effects on their economies as a whole. A survey of the
226 THE JOURNAL OF ENERGY AND DEVELOPMENT
dependent data structure can emerge in the presence of common shocks, spatial
dependence, and unobserved components, which are captured by the error term but
correlate with our electricity series.12 From an empirical standpoint, inter-dependencies
driven by rising trade and financial integrations of national energy markets and tak-
ing the form of spatial correlations across countries may play out and, thus, can
no longer be neglected by integration properties assessment models.13 Further, the
outcome of these assessments is that they will likely introduce inconsistent spuri-
ous estimates; therefore, methods allowing for those inferences should complement
standard univariate ones.14
Third, although a fruitful research direction recently has emerged in studies that
collect and analyze the stationary properties of electricity use series (F. Kula et al.,
D. Borozan and L. Borozan, M. Herrerias et al., and Y. Wang et al.),15 to the best of
our knowledge, no existing assessment has focused explicitly on the world’s top
largest electricity producers to date. Addressing this empirical gap is critical since
the electricity demand recorded in these ten economies cannot be disconnected from
individual pollution trends, global energy consumption, and trade structures, but also
exhibits patterns of cross-market dependence. Accordingly, this calls for further
inquiry into this topic. Hence, this paper seeks to fill these above-mentioned gaps by
providing four empirically and methodologically unique aspects:
(1) Foremost, this paper is among the first to provide an extensive survey of the
energy convergence literature stratified by the energy source considered.
Additionally, it does not only present a methodological discussion outlining
econometric challenges faced by past studies, but also identifies and locates
empirical gaps and caveats that call for further inquiry into this topic.
(2) Second, this study has a competitive edge as it investigates the stationary
properties of electricity consumption series for China, the United States,
India, Russia, Japan, Brazil, Canada, South Korea, Germany, and France.
This sample of economies, which encompasses the major energy consumers
and emitters of pollution globally, also corresponds to the world’s largest
power producers (ranked from 1st to 10th).
(3) Third, this work contrasts with previous ones as it employs a two-stage
stratified approach: (a) univariate and endogenously determined structural
breaks-accounting unit root tests at the country-level; (b) followed by a set
of cross-sectional dependence tests and panel stationary tests accounting for
heterogeneity and cross-sectional dependence among the series; and (c) pro-
viding a k-means clustering and b-convergence analysis. Combining panel-
scaled results and nationwide evidence is thought to offer a more reliable
picture distinguishing between some general electricity patterns at the sam-
ple level and other country-level specificities and heterogeneities. Overall,
we compare those results with the outputs of first-generation panel unit root
procedures, which neither control for heterogeneity nor for cross-sectional
228 THE JOURNAL OF ENERGY AND DEVELOPMENT
Literature Survey
inspect the stochastic convergence of energy consumption using unit root testing
methods. We will now begin our literature overview by summarizing the studies
on the convergence of total energy, fossil-based energy, or electricity consumption,
followed by the research focusing on the convergence of alternative and renewable
energy consumption. To close this literature survey, we discuss the empirical and
methodological gaps in the body of works and a contribution proposal is
formulated.
Studies on Total and Fossil Energy Convergence: The literature on total and
fossil-based energy convergence series is rich and extensive. Generally, previous
papers relied on aggregate energy use data with large and heterogeneous samples
of economies, with panel-level investigations, and constrained their analyses to
multi-country approaches. Among this set of studies are P. Chen and C. Lee for
104 economies, Y. Hsu et al. for 84 countries, V. Mishra et al. for 13 Pacific Island
countries, A. Aslan and H. Kum and I. Ozturk and A. Aslan for 7 sectors in Tur-
key, M. Hasanov and E. Telatar for 178 countries, H. Kum for 15 East Asia and
Pacific countries, B. Ozcan for 17 MENA countries, V. Yilanci and Ç. Tunali for
109 countries, V. Mishra and R. Smyth for 7 sectors in Australia, S. Erdogan et al.
for 6 sectors in Turkey, O. Omoju et al. for 48 Sub-Saharan African countries, and
W. He and H. Chen for 30 Provinces in China.24
On the other hand, we have increasingly seen a growing number of studies
focusing on series for individual fossil energy sources. Regarding fossil fuel use
(all types of sources considered), see H. Lean and R. Smyth along with the work
of M. Destek and S. Sarkodie.25 Regarding both crude oil and NGL production,
interesting conclusions can be found in articles by P. Nayaran et al.26 For petro-
leum consumption, see H. Lean and R. Smyth, N. Apergis and J. Payne, S. Ajlouni
et al., and F. Kızılkaya.27 For coal consumption, one can refer to the article by N.
Apergis et al.28 Finally, for studies related to natural gas, see N. Apergis et al., A.
Aslan, and Y. Cai and C. Magazzino.29
Somewhat connected to this literature, other examinations displayed a signifi-
cant attention toward electricity consumption series. This set of studies is
highlighted by the works of P. Narayan and R. Smyth for 182 countries, L. Gil-
Alana et al. for the United States, N. Apergis and C. Tsouma for 5 sectors in the
United States, F. Kula et al. for 23 high income countries, F. Kula for Turkey, D.
Borozan and L. Borozan for Croatia, M. Herrerias et al. for 29 Chinese regions,
and C. Magazzino for 18 MENA countries.30 In general, previous studies
employed various unit root test procedures over the time domain. Notwithstanding
their relevance, the associated results often conflicted. Table 1 summarizes the
main information on this empirical literature; notice that studies are ordered
chronologically.
Studies on the Convergence of Renewable and Alternative Energy Con-
sumption Series: In this subsection, we highlight the primary features of the more
current studies on the convergence of renewable and alternative energy31
Table 1
230
SUMMARY OF PREVIOUS STUDIES ON TOTAL ENERGY, FOSSIL ENERGY, OR ELECTRICITY USE SERIES CONVERGENCE a
Seg. into
Authors(s) Countries Energy Indicator Data Period Methodology Findings Sub-Series
Narayan and 182 countries Electricity 1979–2000 ADF H0 of non- No
Smyth (2007) consumption per stationarity
capita rejected for 56
countries
Chen and Lee 104 countries Energy 1971–2002 CBL panel unit Non-stationarity No
(2007) consumption per root test
capita
Hsu and Lee 84 countries Energy 1971–2003 Panel SURADF H0 of non- No
(2008) consumption stationarity
rejected
Narayan et al. 6 Australian states Crude oil and NGL 1973–2007 LM (LS) H0 of non- No
(2008a) production stationarity
rejected for 5
out of the 6
states
Narayan et al. 60 countries Crude oil and NGL 1971–2003 LM H0 of non- No
(2008b) production stationarity
rejected with
endogenously
determined
structural break
THE JOURNAL OF ENERGY AND DEVELOPMENT
Lean and Smyth 5 sectors in the Petroleum 1973m1–2008m7 LM (FI) H0 of non- Yes (24
(2009) U.S. consumption stationarity petroleum
rejected for 3 fuels)
out of the 5
sectors
(continued)
Table 1 (continued)
SUMMARY OF PREVIOUS STUDIES ON TOTAL ENERGY, FOSSIL ENERGY, OR ELECTRICITY USE SERIES CONVERGENCE a
Seg. into
Authors(s) Countries Energy Indicator Data Period Methodology Findings Sub-Series
Mishra et al. 13 Pacific Island Energy 1980–2005 CBL panel unit H0 of non- No
(2009) countries consumption per root test stationarity
capita rejected for
8 countries
Apergis and Payne 50 states in the Petroleum 1960–2007 LM (LS, NP) H0 of non- No
(2010) U.S. consumption stationarity
rejected with
endogenously
determined
structural break
Apergis et al. 50 states in the Coal consumption 1982–2007 LM (IPS, CBL, H0 of non- No
(2010a) U.S. CBL and W) stationarity
rejected with
endogenously
determined
structural break
Apergis et al. 50 states in the Natural gas 1980–2007 Panel unit root H0 of non- No
(2010b) U.S. consumption tests stationarity
rejected with
endogenously
determined
structural break
Gil-Alana et al. U.S. Electricity 1973m1–2009m5 FI Non-stationarity Yes (8
ELECTRICITY & THE WORLD’S LARGEST PRODUCERS
(continued)
231
Table 1 (continued)
232
SUMMARY OF PREVIOUS STUDIES ON TOTAL ENERGY, FOSSIL ENERGY, OR ELECTRICITY USE SERIES CONVERGENCE a
Seg. into
Authors(s) Countries Energy Indicator Data Period Methodology Findings Sub-Series
Aslan (2011) 50 states in the Natural gas 1960–2008 LM (KSS) H0 of non- No
U.S. consumption stationarity
rejected for 23
out of the 50
states
Aslan and Kum 7 sectors in Turkey Energy 1970–2006 LM (LS) H0 of non- No
(2011) consumption stationarity
rejected for 4
out of the 7
sectors
Hasanov and 178 countries Primary energy 1980–2006 ADF, LM (KSS H0 of non- No
Telatar (2011) consumption per and S) stationarity
capita rejected
Ozturk and Aslan 7 sectors in Turkey Energy 1970–2006 LM (IPS) H0 of non- No
(2011) consumption per stationarity
capita rejected for 6
out of the 7
sectors
Apergis and 5 sectors in the US Fossil, coal, and 1989m1–2009m12 FI H0 of non- No
Tsouma (2012) electricity stationarity
consumption rejected
THE JOURNAL OF ENERGY AND DEVELOPMENT
(continued)
Table 1 (continued)
SUMMARY OF PREVIOUS STUDIES ON TOTAL ENERGY, FOSSIL ENERGY, OR ELECTRICITY USE SERIES CONVERGENCE a
Seg. into
Authors(s) Countries Energy Indicator Data Period Methodology Findings Sub-Series
Ozcan (2013) 17 MENA Energy 1980–2009 LM (LS and IPS) H0 of non- No
countries consumption per stationarity
capita rejected
Lean and Smyth 4 sectors in Fossil fuel 1978–2010 LM (SP and LS) H0 of non- Yes (10
(2014) Malaysia consumption stationarity fossil
rejected for 7 fuels)
out of the 10
fossil fuels
Kula et al. (2014) 23 high income Electricity 1960–2005 LM (LS) H0 of non- No
countries consumption per stationarity
capita rejected for 21
out of the 23
countries
Kula (2014) Turkey Electricity 1923–2008 LM (LS) H0 of non- No
consumption per stationarity
capita rejected
Yilanci and Tunali 109 countries Energy 1960–2011 LM (FLM) H0 of non- No
(2014) consumption per stationarity
capita rejected for 24
out of the 109
countries
Borozan and Croatia Electricity 2001–2013 LM Non-stationarity No
ELECTRICITY & THE WORLD’S LARGEST PRODUCERS
(continued)
233
Table 1 (continued)
SUMMARY OF PREVIOUS STUDIES ON TOTAL ENERGY, FOSSIL ENERGY, OR ELECTRICITY USE SERIES CONVERGENCE a
234
Seg. into
Authors(s) Countries Energy Indicator Data Period Methodology Findings Sub-Series
Herrerias et al. 29 Chinese Electricity and coal 1995–2011 CCM Different No
(2017) Regions consumption convergence
between rural
and urban areas
Magazzino (2017) 18 MENA Electricity 1971–2013 CADF H0 of non- No
countries consumption stationarity
rejected without
constant and
trend
Mishra and Smyth 7 sectors in Energy 1973–2014 LM and RALS-LM Evidence of No
(2017) Australia consumption per convergence for
capita 6 out of the 7
sectors
Cai and Magazzino G-7 countries Natural gas 1965–2016 FQUR H0 of non- No
(2019) consumption stationarity
rejected when
modelling breaks
excluded
Destek and 16 OECD Fossil fuel 1970–2018 FKSS H0 of non- Yes (oil,
Sarkodie (2020) countries consumption stationarity coal
rejected for oil and gas)
(4 out of 16
countries), coal
THE JOURNAL OF ENERGY AND DEVELOPMENT
(6 out of 16
countries), and
natural gas (5
out of 16
countries) series
(continued)
Table 1 (continued)
SUMMARY OF PREVIOUS STUDIES ON TOTAL ENERGY, FOSSIL ENERGY, OR ELECTRICITY USE SERIES CONVERGENCE a
Seg. into
Authors(s) Countries Energy Indicator Data Period Methodology Findings Sub-Series
Erdogan et al. 6 sectors in Turkey Energy 1970–2016 F-PKPSS Non-stationarity at No
(2020) consumption per both the sectoral
capita and panel levels
Omoju et al. 48 Sub-Saharan Energy 1980–2011 ADF, CMR, and H0 of non- No
(2020) African consumption LM (LS) stationarity
countries rejected
Ajlouni et al. Jordan Petroleum 1961–2019 LM Non-stationarity No
(2021) consumption
Kızılkaya (2022) 10 OECD Oil consumption 1965–2019 FQUR Non-stationarity Yes
countries
He and Chen 30 Provinces in Energy 1990–2017 CCM Non-stationary/ No
(2022) China consumption non-convergence
a
Seg. 5 segmentation; ADF 5 Augmented Dickey-Fuller unit root test; CADF 5 Cointegration Augmented Dickey-Fuller unit root test; CBL 5
Carrion-i-Silvestre et al. (2005) panel unit root test; CCM 5 Club Convergence Modelling; CMR 5 Clemente, Monta~nes, and Reyes (Clemente et al.,
1998) unit root test; FI 5 Factorial Integration (Nielsen, 2005); FKSS 5 Fourier Kapetanios et al. (2003) unit root test; FLM 5 Fourier type Lagrange
Multiplier (Enders and Lee, 2012); F-PKPSS 5 Fourier Panel Kwiatkowski–Phillips–Schmidt–Shin (Kwiatkowski et al., 1992) unit root test; FQUR 5
Fourier Quantile unit root test; IPS 5 Im et al. (2003) unit root test; KSS 5 Kapetanios et al. (2003) unit root test; LM 5 Lagrange Multiplier; LS 5 Lee
and Strazicich (2003) one break unit root test; NP 5 Narayan and Popp (2010) unit root test; Panel SURADF 5 Panel Seemingly Unrelated Regressions
Augmented Dickey–Fuller (Breuer et al., 2001); RALS-LM 5 Residual Augmented Least Quares-Lagrange Multiplier unit root test; S 5 Sollis (2005)
unit root test with simultaneous structural change and nonlinearity; SP 5 Schmidt and Phillips (1992) unit root test; W 5 Westerlund (2005) unit root test;
ELECTRICITY & THE WORLD’S LARGEST PRODUCERS
consumption series. Recently, this research area, in general, has assessed the inte-
gration properties of clean energy consumption at the aggregate level (see Y.
Wang et al. for Japan and Y. Cai and A. Menegaki for eight emerging countries).32
For renewable energy use, most notably, the reader can refer to the studies by C.
Pestana Barros et al. and C.-C. Lee et al. for the United States, G. Gozgor for Bra-
zil, China, and India, E. Demir and G. Gozgor for 54 countries, and E. Fendoglu
for BRICS-T.33 Concerning research on nuclear power use, we highlight the
articles by C. Pestana Barros et al. for the United States and H. Zhu and P. Guo for
27 countries.34 However, it is worth reporting the few seminal assessments that
have opened a productive research pathway by examining the stationary properties
of individual renewable energy sources; these include N. Apergis and C. Tsouma
for solar, geothermal, and biomass energy consumption and M. Aydin and U. Pata
for the analysis of nine distinct renewable energy sources.35 Another recent
research focus area has been on conducting convergence assessments for global
and relatively wider sample sizes, but composed of structurally heterogeneous
economies (see C. Saba and N. Ngepah for 182 countries).36 Table 2 summarizes
the studies focusing on convergence of renewable and alternative energy
consumption.
Methodological Discussion, Empirical Gaps, and Contribution Proposal: A
survey of the energy convergence literature highlights several major points. First, a
wide range of papers have extensively assessed the stationary properties of total
energy use and focused on various case studies (P. Chen and C. Lee for 104 coun-
tries, Y.-C. Hsu et al. for 84 countries, V. Mishra et al. for 13 Pacific Island coun-
tries, A. Aslan and H. Kum for 7 sectors in Turkey, H. Kum for 15 East Asia and
Pacific countries, and B. Ozcan for 17 MENA countries).37 While they typically
collected aggregate consumption series, disaggregated energy sources have been
considered much less. Moreover, a recent line of investigation in the field has
arisen using integration properties of renewable energy series, which can be seen
in the works of C. Pestana Barros et al. and C.-C. Lee et al. for the United States,
G. Gozgor for Brazil, China, and India, E. Demir and G. Gozgor for 54 countries,
E. Fendo glu for BRICS-T countries, and C. Saba and N. Ngepah for a mixed panel
of 184 economies.38 However, for both lines of research, it is clear that case stud-
ies, data periods, and methodologies differ strongly and the studies’ associated con-
clusions often conflict. Therefore, a trade-off with diverging costs-benefits seems
to emerge. On the one hand, we do observe a progressive shift toward more global-
ized panel assessments with samples containing numerous but structurally hetero-
geneous economies. However, this not only prevents the supply of country-specific
empirical insights, it also offers concluding remarks and policy implications that
are less generalizable because they are constrained by the collapsing nature of the
panel. On the other hand, a few attempts to conduct single-country investigations
can be identified. Sometimes, these relied on sectoral or province-level data series,
but not systematically. While this approach offers the advantageous feature of
Table 2
SUMMARY OF PREVIOUS STUDIES ON CONVERGENCE OF RENEWABLE AND ALTERNATIVE ENERGY CONSUMPTION a
Seg. in
Authors(s) Countries Energy Indicator Data Period Methodology Findings Sub-Series
Apergis and 5 sectors in the Solar, geothermal, and 1989m1– FI H0 of non-stationarity No
Tsouma (2011) U.S. biomass energy 2009m12 rejected
consumption
Pestana Barros U.S. Renewable energy 1981m1– FI Non-stationarity No
et al. (2012) consumption 2010m10
Pestana Barros U.S. Nuclear energy 1973m1– FI Non-stationarity No
et al. (2013) consumption 2011m10
Gozgor (2016) Brazil, China, Renewable energy 1971–2014 NP-UR, LS H0 of non-stationarity No
and India consumption rejected for China and
India
Wang et al. (2016) Japan Renewable and nuclear 1965–2011 LM (LS, IPS), H0 of non-stationarity No
energy consumption FLM rejected for renewables
only
Zhu and Guo 27 countries Nuclear energy 1993–2013 CBL panel unit H0 of non-stationarity No
(2016) consumption per capita root test rejected with
endogenously deter-
mined structural break
Demir and Gozgor 54 countries Renewable energy 1971–2016 NP H0 of non-stationarity No
(2018) consumption rejected for 45 out of
the 54 countries
Cai and Menegaki 8 emerging Renewable and nuclear 1990–2012 FQUR H0 of non-stationarity No
ELECTRICITY & THE WORLD’S LARGEST PRODUCERS
(continued)
237
238
Table 2 (continued)
SUMMARY OF PREVIOUS STUDIES ON CONVERGENCE OF RENEWABLE AND ALTERNATIVE ENERGY CONSUMPTION a
Seg. in
Authors(s) Countries Energy Indicator Data Period Methodology Findings Sub-Series
Aydin and Pata U.S. Renewable energy 1973m01– Wavelet-based H0 of non-stationarity Yes (9
(2020) consumption 2019m09 ADF rejected for biofuels renewable
and hydropower energy energy
consumption sources)
Fendo
glu (2021) BRICS-T countries Renewable energy 1990–2015 FFFUR H0 of non-stationarity No
consumption rejected for China only
Lee et al. (2021) 50 states in the Renewable energy 1960–2017 FQUR H0 of non-stationarity No
U.S. consumption rejected for 32 out of
the 51 states
Saba and Ngepah 183 countries Renewable energy 2000–2018 CCM/ MLR/ No panel convergence No
(2022) (SSA, MENA, consumption Clustering
ECA, ESAP and Algorithms
America)
Notes: SSA 5 Sub-Saharan Africa (SSA); MENA 5 Middle East and North Africa; ECA 5 Europe and Central Asia; ESAP 5 East and South Asia
and the Pacific; and BRICS-T 5 Brazil, Russia, India, China, South Africa, and Turkey. CBL: Carrion-i-Silvestre et al. (2005) panel unit root test. CCM:
Club Convergence Modelling. FFFUR: Fractional Frequency Fourier unit root test. FI: Factorial Integration (Nielsen, 2005). FQUR: Fourier Quantile unit
root test. IPS: Im et al. (2003) unit root test. LS: Lee and Strazicich (2003) one break unit root test. MLR: Multinomial Logit Regression. NP: Narayan and
THE JOURNAL OF ENERGY AND DEVELOPMENT
Popp (2010) unit root test. Wavelet-based ADF: Wavelet based Augmented Dickey-Fuller unit root test.
Source: Authors’ compilation.
ELECTRICITY & THE WORLD’S LARGEST PRODUCERS 239
providing more reliable policy insights, it fails to exploit the cross-case compara-
bility potential of time-series analyses. Furthermore, it exits from the scope of stan-
dard b-convergence frameworks.
It is clear that integration properties of any given data series are sensitive to the
selection of case studies, definition, and metrics of variables but also choices of
methods. Regarding the former, there is a need to reorient the literature toward a
more reliable and relevant selection of samples and overcome choices only driven
by data availability constraints. Instead, gathering together countries sharing a slig-
htly similar structure or exhibiting a comparable trend may deliver more valuable
insights than large panels with mixed and highly heterogenous slope coefficients.
Looking at the latter, it appears crucial to highlight the diversity of time-series meth-
odologies that have been employed on this topic thus far. Ranging from standard
unit root tests on the time domain to Fourier-transformed procedures on the fre-
quency domain, these strategies rely on econometric frameworks that exhibit dif-
ferent statistical assumptions and scopes. While some are univariate tests with a
constant and trends, others allow for endogenously determined structural breaks in
the series with often the impossibility to transfer from a country to a panel setting
and vice versa using an identical test.
Additionally, as was previously discussed with the rising frequency of studies
conducting large panel assessments, we must highlight that cross-sectional depen-
dence and spatial correlation among the series remain largely uncontrolled for in
these works. While there are some notable exceptions (C. Magazzino, M. Destek and
S. Sarkodie, and S. Erdogan et al.), the outstanding methodological issues still
remain.39 In other words, there is a need to complement conventional panel stationary
tests with more advanced applications accounting for cross-sectional dependence
dynamics. Indeed, over the past decade the Time-Series Cross-Section (TSCS) eco-
nometric literature showed a keen interest in cross-sectional dependence-related bias.
From an empirical standpoint, it is clear that inter-dependencies driven by the eco-
nomic and financial integration of markets and taking the form of spatial correlations
across countries can no longer be neglected by integration properties assessment
models.40 In a globalized context (trade and financial), regional and national linkages
operate through common macroeconomic shocks affecting multiple entities, common
international policy directions pushed by inter-state organizations (i.e., the Bank for
International Settlements (BIS), the Kyoto Protocol and the Paris Agreement, Interna-
tional Labour Organization (ILO)), spillover effects, and technology transfers across
sectors belonging to different industries and countries.41 From a statistical point of
view, a cross-sectionally dependent data structure can emerge in the presence of com-
mon shocks, spatial dependence, and unobserved components, which are captured by
the error term but correlate with our electricity series.42 When not taken into account,
these factors are likely to introduce inconsistent spurious estimates.43
Overall, while a promising research direction has been advanced of late by stud-
ies collecting and analyzing the stationary properties of electricity use series,44 to
240 THE JOURNAL OF ENERGY AND DEVELOPMENT
the best of our knowledge, no such assessment has explicitly focused on the
world’s top largest electricity producers to date. Such an empirical gap is critical
since the electricity demand recorded in these ten economies cannot be discon-
nected from individual pollution trends, global energy consumption, and trade
structures, in addition to patterns of cross-market dependence. Accordingly, this
calls for further inquiry into this topic.
Therefore, this paper seeks to fill these above-mentioned literature gaps in a sin-
gle manner and provide several distinct and novel aspects—empirically and meth-
odologically. Foremost, this study is the first to investigate the stationary
properties of electricity consumption series for China, the United States, India,
Russia, Japan, Brazil, Canada, South Korea, Germany, and France. This sample of
economies, which is comprised of the major energy-consuming and pollution emit-
ters globally, also corresponds to the top ten largest power producers worldwide
(from 1st to 10th). Second, this paper contrasts to previous ones as it employs two-
stage stratified approach: univariate and endogenously determined structural
breaks-accounting unit root tests at the country-level, followed by a set of cross-
sectional dependence tests, and panel stationary tests accounting for structural
breaks and cross-sectional dependence among the series. Combining panel-scaled
results and nationwide evidence is thought to offer a more reliable picture distin-
guishing between some general electricity patterns at the sample level and other
country’s specificities and heterogeneities. Finally, the data series used in this
study span the largest and most available period (1985-2020), which provides
more accurate economic and policy insights that can be utilized for energy and
environmental planners and policy makers.
Figure 1
ELECTRICITY CONSUMPTION OF THE WORLD’S TOP TEN LARGEST POWER
PRODUCERS: CHINA, THE UNITED STATES, INDIA, RUSSIA, JAPAN, BRAZIL, CANADA,
SOUTH KOREA, GERMANY, AND FRANCE (2000–2020)
8000
Electricity Power Generaon per Country -Twh
6000
4000
2000
Source: Authors’ elaboration based on British Petroleum’s Statistical Review of World Energy
(2021) data.
Table 3
DESCRIPTIVE STATISTICS AND CORRELATION ANALYSISa
Country Mean Median Std. Dev. Skew. Kurt. S-W Test IQR
China 2847.407 1782.288 2368.146 20.83193 0.75946 3.409*** 7368.37
(0.00033)
United States 3880.168 4124.877 566.4619 20.50672 20.88775 3.588*** 1804.436
(0.00017)
India 741.0193 623.8907 438.1849 20.75794 0.648809 2.404*** 1417.289
(0.00812)
Russia 992.0327 1013.575 91.00511 21.19565 20.48072 2.596*** 290.9852
(0.00471)
Japan 1013.433 1054.027 139.4059 0.744349 21.22936 3.403*** 511.767
(0.00033)
Brazil 391.9021 356.6304 145.2944 21.40605 0.248037 2.484*** 432.6462
(0.00649)
Canada 585.4512 599.1508 61.4148 20.85677 20.56418 2.190** 204.7292
(0.01426)
South Korea 337.413 339.8886 178.6126 21.44127 20.04825 2.240** 530.2374
(0.01254)
Germany 587.7562 586.5498 44.44705 21.57609 0.004342 2.634*** 130.3922
(0.00422)
France 514.55 544.7425 69.31378 0.197418 21.15938 3.933*** 232.5792
(0.00004)
a
*** 5 p,0.01; ** 5 p,0.05; and * 5 p,0.10. Std. Dev. 5 standard deviation; Skew. 5
skewness; Kurt. 5 Kurtosis; S-W Test 5 Shapiro-Wilk Test; and IQR 5 Inter-Quartile Range.
Source: Authors’ elaborations.
Range (IQR), which measures the difference between the first and third quartile
marks, shows that the middle-half of the data has a high variability in a few coun-
tries only. Finally, the Shapiro-Wilk test (S-W) rejects the null hypothesis of nor-
mal residuals distribution at the 5-percent level for all countries.
Time-Series Econometric Framework: This section presents our stepwise
time-series methodology.
Country-Level Integration Properties—Univariate and Endogenously Deter-
mined Structural Breaks: A time series is said to be stationary if its statistical prop-
erties (mean, variance, and autocorrelation) are constant over time. In a nutshell, if
a series is stationary, one can predict that its properties will remain constant in the
future, which turns out to be highly useful when it comes to forecasting. Con-
versely, most statistical forecasting methods require the validation of this assump-
tion. Here, we employ a stepwise time-series testing methodology involving
ELECTRICITY & THE WORLD’S LARGEST PRODUCERS 243
X
k
yt 5 a1 1 a2 t 1 a3 DUt ðlÞ 1 a4 DTt ðlÞ 1 ryt1 1 wj Dytj 1 «t (1)
j51
Where the dummy variables DUT, capturing a switch in the intercept, equals 1, and
DTt represents a shift in the trend, equals t if t . TB and 0 otherwise. This is the
most common formulation of the ZA model because it allows for changes in both
the intercept and the broken trend. This typically refers to Model ‘C’ in compari-
son to Model ‘A’ (with a4 5 0Þ, which examines whether the series is trend station-
ary with a break in the mean and Model ‘B’ (a3 5 0), which tests for the existence
of a trend shift. The ZA model estimates sequentially these three models: ‘A, ’ ‘B, ’
and ‘C:’ Finally, it ensures that TB is endogenously determined because it allows
this latter to occur in any particular year of the time series, except the first and last
one. Finally, the break fraction “l-ratio of the pre-break sample size to the overall
sample” is chosen to lower the one-sided t-statistic for testing ^r 5 1 and test the
null hypothesis of a unit root process with a break. This is equivalent to:
The null hypothesis of the test is of homogenous slopes, which implies that all
slope coefficients are identical across cross-sectional units, against the alternative
hypothesis of heterogeneous slope b coefficients. One competitive feature of this
procedure is that it automatically assumes a vector of heterogeneous constants.
Associated hypotheses are formulated as:
Where rij refer to the sample-level estimation of the pair-wise correlation of the
residuals computed using «it amd the OLS residuals estimate of uit . ^r ij are com-
puted as follows:
PT
« «
t 5 1 it jt
r^ ij 5 r^ ji 5 P 12 P 1 (7)
T T
t51
« it
2
t51
« jt
2 2
Breusch and Pagan proposed the LM statistics valid for fixed N as T ! 1: None-
theless, this is likely to exhibit size distortions when N is large and T is finite. This
situation is commonly encountered in empirical panel approaches and does apply
to the present case study of the world’s top ten largest electricity consumers
(China, the United States, India, Russia, Japan, Brazil, Canada, South Korea, Ger-
many, and France). To fill this gap, Pesaran (2004) proposed the alternative test
statistic, which presents two competitive features: under the null hypothesis of no
cross-sectional dependence and for large T and N ! 1, CD converge to N(0,1) (i)
and, unlike the LM statistic, the CD statistic will display a zero mean for fixed T
and N values under heterogeneous and non-stationary models.62
sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
2T X X
N 1 N 51
CD 5 r
^ (8)
N ðN 1Þ i 5 1 j 5 i 1 1 ij
246 THE JOURNAL OF ENERGY AND DEVELOPMENT
Where the null hypothesis laying under the Breitung71 test statistic is difference
Pp 1 1
stationarity H0 : k 5 1 bik 1 5 0 against the alternative stationary H1 :
Pp 1 1
k 5 1 bik 1,0 for all i: The following transformed vectors are used to con-
struct the test statistic:
(
Yi 5 AYi 5 ½yi1 ,yi2 ,:::,yiT 9
(13)
Xi 5 AXi 5 ½xi1 ,xi2 ,:::,xiT 9
This leads to the following Maddala and Wu-augmented test statistic,72 displaying
the advantageous feature of having a standard normal distribution:
PN
s2 Yi9 Xi9
i51 1
lB 5 qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
PN 2 9 9 9 (14)
i51 1
s Xi A AXi
Overall, juxtaposed to the results of the Breitung73 panel unit root test and the
Pesaran Cross-sectionally Augmented Im, Pesaran, and Shin (CIPS) panel unit root
test, we display the outputs of standard panel unit root procedures, which neither
control for heterogeneity nor for cross-sectional dependence, the Im-Pesaran-Shin
(IPS),74 and the Levin-Lin-Chu (LLC)75 panel unit root tests. Comparing first to
second generation unit root outcomes aims to examine whether our sample-level
stationary findings are sensitive to the presence of those latter inferences within the
data. In sum, our stepwise unit root testing methodology is outlined in figure 2. It
is comprised of the following stages:
Stage 1 - Univariate unit root tests are first performed at the country level,
namely, the Augmented Dickey and Fuller (ADF) test (Dickey and Fuller,
1979), the Phillips and Perron (PP) test (Phillips and Perron, 1988), the
Dickey and Fuller-Generalized Least Squares (DF-GLS) test, and the Kwiat-
kowski-Phillips-Schmidt-Shin (KPSS) test (Kapetanios et al., 2003).76
Stage 2 - We conduct the Clemente, Monta~nes, and Reyes (CMR) test (Cle-
mente et al., 1988), followed by the Zivot and Andrews (ZA) test (Zivot and
Andrews, 2002);77 while the former allows for additive outliers, the latter
accounts for multiple endogenous breaks in both the intercept and the time
trend.
Stage 3 - We assess the main panel statistical properties: heterogeneous slope
coefficients (Pesaran and Yamagata (2008) test of slope homogeneity); cross-
sectional dependence among the series (Friedman (1937) and Frees (1995,
2004) cross-sectional independence tests); Pesaran (2004) cross-section
dependence (CD) test; and Pesaran et al. (2008) bias-adjusted LM test of
error cross-section independence.78
Figure 2
248
Empirical Results
FULLER-GENERALIZED LEAST SQUARES (DF-GLS), AND KWIATKOWSKI-PHILLIPS-SCHMIDT-SHIN (KPSS) UNIT ROOT TESTS
EXCLUDING STRUCTURAL BREAKS IN THE SERIESa
Level D Operator
DF-GLS KPSS DF-GLS KPSS
Country ADF Stat. PP Stat. Stat. Stat. ADF Stat. PP Stat. Stat. Stat.
China
20.303 (0.9894) 20.985 (0.7585) 21.668 0.177 23.001 (0.1317) 22.898** (0.0456) 22.554 0.171*
United States
20.948 (0.9507) 24.997 (0.0000) 0.107 0.45 26.914* (0.0000) 24.669* (0.0001) 25.056* 0.0291*
India
21.861 (0.6747) 23.244** (0.0176) 20.837 0.282 25.423* (0.0000) 24.411* (0.0003) 22.670 0.113*
Russia
20.994 (0.9449) 21.236 (0.6581) 21.404 0.339 23.268*** (0.0717) 23.209** (0.0194) 23.346*** 0.127*
Japan
21.376 (0.8678) 24.017* (0.0013) 20.108 0.44 26.823* (0.0000) 24.013* (0.0013) 23.710** 0.0612*
Brazil
21.016 (0.9419) 21.249 (0.6520) 21.323 0.185 25.800* (0.0000) 25.715* (0.0000) 23.330*** 0.107*
Canada
22.247 (0.4635) 22.645*** (0.0840) 20.937 0.347 26.827* (0.0000) 26.532* (0.0000) 24.944* 0.0278*
South Korea
20.849 (0.9613) 29.791* (0.0000) 20.094 0.448 26.093* (0.0000) 22.104 (0.2428) 24.833* 0.0429*
Germany
20.550 (0.9813) 21.659 (0.4523) 21.065 0.189 25.632* (0.0000) 25.420* (0.0000) 22.165 0.135*
France
21.214 (0.9077) 25.238* (0.0000) 0.096 0.446 27.163* (0.0000) 24.617* (0.0001) 24.005* 0.0448*
THE JOURNAL OF ENERGY AND DEVELOPMENT
a
***p,0.01, **p,0.05, *p,0.10. lag length selected k 5 1. Stat. 5 Statistics. For DF-GLS, the critical values are as follows: 23.77 (1% significance
level), 22.756 (5% significance level) and 22.371 (10% level). For KPSS, the critical values are as follows: 0.119 (10% significance level), 0.146 (5%
significance level), 0.176 (2.5% significance level), and 0.216 (1% significance level). P-values are reported in brackets.
Source: Authors’ compilation.
ELECTRICITY & THE WORLD’S LARGEST PRODUCERS 251
Table 5
RESULTS FOR UNIT ROOT TESTS WITH STRUCTURAL BREAKS (IN INTERCEPT OR IN
TREND) AND FOR ADDITIVE OUTLIER UNIT ROOT TESTS (SINGLE STRUCTURAL
BREAK) – FOR LEVEL SERIESa
Zivot and Andrews (ZA) Tests – Level Series
(a) (b)
Variable Tb k tmin Tb k tmin
China 2003 1 22.899 2014 1 22.512
United States 2008 1 21.740 2003 1 22.997
India 1991 1 22.055 2015 1 22.391
Russia 1992 1 24.714** 1995 1 24.540**
Japan 2009 1 22.296 1991 1 22.859
Brazil 2015 1 23.126 2014 1 23.579
Canada 1994 1 23.892 2001 1 23.962
South Korea 2013 1 22.130 2011 1 22.195
Germany 2000 1 21.742 2015 1 21.931
France 2000 1 22.030 2003 1 22.305
nes, and Reyes (CMR) Tests – Level Series
Clemente, Monta~
Optimal t-statistic Optimal t-statistic
Variable break point k (additive outlier) break point k (innovational outlier)
China 1997, 2007 1 7.331* 1989, 2000 1 1.901***
(0.000) (0.067)
United States 1994, 2001 1 7.65* 2016, 2018 1 1.54
(0.000) (0.134)
India 1996, 2010 1 8.98** 2006, 2009 1 0.458
(0.012) (0.656)
Russia 1995, 2009 1 23.151* 1990, 2003 1 25.566*
(0.004) (0.000)
Japan 1991, 1996 1 6.030* 2009, 2018 1 23.969*
(0.000) (0.001)
Brazil 1996, 2007 1 9.199* 1993, 2002 1 2.280**
(0.000) (0.03)
Canada 1995, 2008 1 8.962* 1989, 2010 1 2.025***
(0.000) (0.052)
South Korea 1996, 2007 1 8.532* 1992, 1997 1 20.357
(0.000) (0.729)
Germany 2000, 2013 1 10.18* 1998, 2011 1 2.127**
(0.000) (0.042)
France 1992, 2000 1 8.187* 1989, 1998 1 2.680**
(0.000) (0.012)
a
(a) corresponds to the model allowing for break in intercept. (b) refers to the model allowing for
break in trend. Tb is the break date endogenously selected. tmin is the minimum t-statistic. k denotes
the lag length selected according to the AIC criterion. 5% critical values are provided in parentheses.
***p , 0.01, **p , 0.05, *p , 0.1.
Source: Authors’ elaborations.
252 THE JOURNAL OF ENERGY AND DEVELOPMENT
Table 6
RESULTS FOR UNIT ROOT TESTS WITH STRUCTURAL BREAKS (IN INTERCEPT OR IN
TREND) AND FOR ADDITIVE OUTLIER UNIT ROOT TESTS (SINGLE STRUCTURAL
BREAK) – FOR FIRST-DIFFERENCE SERIESa
Zivot and Andrews (ZA) Tests – First-Difference Series D
(a) (b)
Variable Tb k tmin Tb k tmin
China 2000 1 24.336 2007 1 23.783
United States 1991 1 27.443* 1993 1 27.012*
India 2007 1 26.510* 1997 1 25.636*
Russia 1999 1 24.267* 1992 1 23.529
Japan 1992 1 27.850* 2012 1 27.263*
Brazil 2015 1 26.856* 2011 1 26.529*
Canada 2011 1 27.043* 1991 1 26.937*
South Korea 1998 1 26.628* 1999 1 26.370*
Germany 1995 1 26.390* 2015 1 26.843*
France 2000 1 24.336 2007 1 23.783
nes, and Reyes (CMR) Tests – First-Difference Series D
Clemente, Monta~
Optimal break t-statistic Optimal break t-statistic
Variable point k (additive outlier) point k (innovational outlier)
China 2001, 2009 1 2.65** 2001, 2006 1 4.034*
(0.012) (0.001)
United States 1999, 2007 1 21.898*** 1990, 2006 1 24.368*
(0.068) (0.000)
India 1997, 2009 1 22.129** 1994, 2010 1 22.457**
(0.041) (0.02)
Russia 1992, 1996 1 23.119 1990, 1993 1 28.146*
*(0.004) (0.000)
Japan 1988, 2007 1 23.810* 1989, 2007 1 23.191*
(0.001) (0.003)
Brazil 1999, 2012 1 21.994*** 2000, 2013 1 24.067*
(0.056) (0.000)
Canada 1988, 1996 1 21.008 1989, 1996 1 22.531**
(0.332) (0.017)
South Korea 1995, 2012 1 25.410* 1996, 2011 1 23.366*
(0.000) (0.008)
Germany 1994, 2007 1 22.217** 1992, 2008 1 21.802***
(0.036) (0.082)
France 2001, 2009 1 2.655** 2001, 2006 1 4.034*
(0.012) (0.001)
a
(a) corresponds to the model allowing for break in intercept. (b) refers to the model allowing for
break in trend. Tb is the break date endogenously selected. tmin is the minimum t-statistic. k denotes the
lag length selected according to the AIC criterion. 5% critical values are provided in parentheses.
***p , 0.01, **p , 0.05, *p , 0.1.
Source: Authors’ elaborations.
ELECTRICITY & THE WORLD’S LARGEST PRODUCERS 253
innovational outlier).80 For both ZA and CMR procedures, notice that the lag
length selection has been chosen based on the information given by the AIC. For
level series, the null hypothesis of non-stationarity fails to be rejected for all coun-
tries except Russia, regardless of the inclusion of a break in the intercept or the
trend. This contradicts with the CMR output, which shows evidence of stationary
properties for all countries but with heterogeneous optimal break points. Interest-
ingly, these findings are constant over CMR specifications (additive outlier and
innovational outlier) and in line with CMR’s results on first-difference series,
which unanimously reject the null hypothesis of a unit root for all countries. Also,
it is worth noticing that ZA- and CMR-derived optimal break points are sensitive
to the model’s specification of breaks in the intercept/trend and/or the use of an
additive/innovational outlier. All in all, ZA results also do provide ample evidence
of stationary properties when using first difference-transformed series. Therefore,
one can conclude that, when we allow for the presence of structural breaks in the
electricity series, they remain integrated of order 1 (i.e., I(1)).
Panel Stationary Properties Assessment: In the previous subsection the time-
series unit root evidence was provided, but only at the country level. Therefore, we
go beyond country-specific heterogeneities, and hypothesize that there may exist a
general trend shared by panel members at the sample level. However, when pooling
series all together within a panel framework, a standard but constraining assumption
of those models is that the error terms are independent across cross-sections. In
table 7 the empirical results show that the null hypothesis of cross-sectional indepen-
dence is rejected at the 1-percent significance level by all cross-section dependence
testing procedures. Thus, our panel of electricity consumption series is likely to suf-
fer from this inference.
Besides the cross-country correlations of electricity consumption series, we
expect non-homogeneous slope coefficients due to structural economic differences
Table 7
RESULTS OF PANEL CROSS-SECTION DEPENDENCE TESTSa
Test t-Statistics P-Value
1. Pesaran’s CD test (2004) 29.34*** 0.000
2. Frees’ test (2004) 0.944*** 0.000
3. Friedman’s test 110.996*** 0.000
4. Pesaran et al. (2008) test 276.15*** 0.000
a
(1) Pesaran (2004) CD test for cross-section dependence in panel time-series data; (2) Frees (2004)
for cross-sectional dependence by using Frees’ Q distribution (T-asymptotically distributed); (3)
Friedman (1937) test for cross-sectional dependence by using Friedman’s x2 distributed statistic; and
(4) Pesaran et al. (2008) bias-adjusted LM. Tests include the intercept. ***p,0.01, **p,0.05,
*p,0.10.
Source: Author’s elaboration.
254 THE JOURNAL OF ENERGY AND DEVELOPMENT
among countries. It has been shown that avoiding identifying and controlling for
this inference may generate misleading estimations.81 This hypothesis is checked
using two tests: the Pesaran and Yamagata (2008) test of slope homogeneity, fol-
lowed by the Blomquist and Westerlund (2013) test for slope heterogeneity. The
HAC robust standard errors for slope heterogeneity Kernel are bartlett with average
bandwidth of 3. Looking at the p-values associated with standardized and bias-
adjusted variances in table 8, the null hypothesis of homogenous slope coefficients
can be rejected at the 5-percent significance level. Thus, we have evidence of
heterogeneity.
For balanced panels, under cross-sectional dependence and heterogeneity, the
Breitung panel unit root test can be applied.82 Then, we juxtapose the results of the
Hansen CADF test panel unit root test, which is more adapted to unbalanced panel
structures.83 Moreover, we perform the Pesaran84 Cross-sectionally Augmented
Im, Pesaran and Shin (CIPS) panel unit root test and compare our results with out-
puts from standard panel unit root procedures, which neither control for heteroge-
neity nor for cross-sectional dependence (the Im-Pesaran-Shin (IPS) and the
Levin-Lin-Chu (LLC) panel unit root tests). 85Since the Breitung86 test is sensitive
to the lag length selection, we consider no lag and one lag in the trend-inclusive
equation. Additionally, because the CADF test is also sensitive to the number of
lags selected, we consider an equation with trend and constant for data in level and
an equation with constant only (no trend) for first difference transformed data, aug-
mented by one and two lags, respectively. According to the Breitung test results
displayed in table 9, electricity consumption series from the world’s top ten largest
power producers, when transformed in first differences, reject the null hypothesis
of panel non-stationarity at the 1-percent level; regardless of the use of 1 or 2 lags.
However, this test detects the presence of a unit root when data are used in levels.
Similarly, the Pesaran CIPS and Pesaran CADF panel unit root tests reject the null
of non-stationarity for first difference transformed series and one lag, whereas they
fail to do so for level series. Interestingly, both the IPS and LLC outcomes failed
Table 8
RESULTS OF PANEL SLOPE HOMOGENEITY TESTSa
Pesaran and Yamagata Blomquist and Westerlund
Variance (2008) Test (2013) Test
^
Standardized variance D 3.159*** 2.085**
(0.002) (0.037)
Biased-adjusted variance 3.304*** 2.184**
~ HAC
D adj / D (0.001) (0.029)
a
The statistic of the test is displayed. The p-value are reported in brackets. ***p,0.01, **p,0.05,
*p,0.10.
Source: Authors’ elaboration.
ELECTRICITY & THE WORLD’S LARGEST PRODUCERS 255
Table 9
RESULTS OF PANEL UNIT ROOT TESTSa
Panel Unit Root Test Level D Operator
1st Generation Procedures – Standard
1. Levin et al. (2002) LLC test 25.6644*** (0.0000) 22.9935*** (0.0014)
2. Im et al. (2003) IPS test 24.0753*** (0.0000) 27.7236*** (0.0000)
2nd Generation Procedures – Cross-Sectionally Augmented
3. (a) Breitung (2001) test – (0) 4.6268 (1.0000) 24.4738*** (0.0000)
3. (b) Breitung (2001) test – (1) 4.3648 (1.0000) 21.9274** (0.0270)
4. (a) Pesaran (2003) CADF test – (1) 21.341 (1.0000) 23.145*** (0.001)
4. (b) Pesaran (2003) CADF test – (2) 1.700 (1.0000) 1.700 (1.0000)
5. Pesaran (2007) CIPS test 1.2334 (1.0000) 25.5547*** (0.0000)
a
D refers to the first-difference operator. The statistics of the tests are displayed. (1) Levin-Lin-Chu
(LLC, Levin et al., 2002) panel unit root test. (2) Im-Pesaran-Shin (IPS, Im et al., 2003) panel unit root
test. (4 – a,b) Pesaran (2003) CADF panel unit root based on the mean of individual DF (or ADF)
t-statistics of each unit in the sample - Z-t-bar or t-bar statistics are reported - deterministic chosen:
constant and trend (lag 1); constant only (no trend – lag 2). (5) Pesaran (2007) Cross-sectionally
augmented Im, Pesaran and Shin (CIPS) panel unit root test. (x) refers to the lag length selected based
on the information given by the Final Prediction Error (FPE), the Akaike’s Information Criterion (AIC),
the Schwarz’s Bayesian Information Criterion (SBIC) and the Hannan and Quinn Information Criterion
(HQIC). The p-values are reported in brackets. ***p,0.01, **p,0.05, *p,0.10.
Source: Authors’ elaboration.
to adequately align with the Breitung and Pesaran CADF results, which indicates
that panel stationary findings are sensitive to the presence and control of cross-
sectional dependence across units. Overall, our cross-sectionally dependent series
can be said to be integrated of order 1 (i.e., Ið1Þ); thus, their first-difference trans-
formation present stationary properties, whereas level data fail to do so.
K-means Clustering and b-Convergence Analysis: X. Sala-i-Martin and R.
Barro87 emphasized that a b-convergence dynamics may arise if the partial correla-
tion between growth in a variable over time and its initial level takes a negative
sign. Thus, it is of great interest to assess whether we observe a global converging
or diverging trend among electricity consumption series in our sample.
To do so, we implement a clustering method related to partition procedures,
which break the observations into a distinct number of nonoverlapping groups. One
extensively employed partition clustering method corresponds to k-means cluster
analysis in which each observation is assigned to a clustered group whose arithmetic
average is the closest. Based on this classification, new group means are identified
and created until the group’s structure becomes independent to the treatment of
additional observations. Naturally, an identical procedure is applied in k-medians
cluster methods with the difference being that medians are computed instead of
means. Empirical findings identify two distinct clusters of countries: China, the
256 THE JOURNAL OF ENERGY AND DEVELOPMENT
Table 10
RESULTS OF b-CONVERGENCE ANALYSISa
Measure Overall Sample Cluster 1 Cluster 2
b-Convergence 0.9683795 0.9822005 0.9454811
a
Cluster 1: 1st to 5th global ranked electricity consumers. Cluster 2: 6th to 10th global ranked
electricity consumers.
Source: Authors’ elaboration.
United States, India, Russia, and Japan are placed in the first cluster being the larg-
est electricity consumers, while Brazil, Canada, South Korea, Germany, and France
are placed in the second group. Interestingly, the k-means clustering outcome ade-
quately reflects electricity consumption structures as the first cluster gathers the
world’s top five electricity consumers, whereas the second group encompasses 6th
to 10th top power producers. As shown in table 10, the b-convergence measure for
the sample as a whole is 0.9683795, which fails to support the existence of con-
verging dynamics in terms of electricity consumption within the panel. Also, the
b-convergence estimate for the first cluster is 0.9822005, while being 0.9454811
for the second. This indicates general diverging forces, although the second cluster
seems to display a relatively lower diverging trend compared to the first one.
domain, the use of tools finding applications in the frequency domain remains rela-
tively overlooked. Recently, Y. Cai and A. Menegaki96 offered the first empirical
application of the innovative Fourier augmented Quantile Unit Root (FQUR) test
with Fourier type deterministic trends, as theoretically proposed in Bahmani-
Oskooee et al. This latter procedure, based on the frequency domain, displays
unexploited competitive edges, including approximating smooth breaks, capturing
heterogeneous stochastic convergences that may differ across quantiles, estimating
a unique mean-reverting speed for each quantile of electricity consumption, and
thus providing integration evidence over the whole quantiles, but also at the quan-
tile level. Therefore, a potentially fruitful direction exists in developing economet-
ric tools that can overcome the conditional central tendency limits of conventional
unit root tests. Undoubtedly, promoting empirical analysis over the frequency
domain analysis may maximize the amount of information extracted from each
time series with potential inclusive knowledge and valuable policy insights gained
on this topic.
NOTES
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