Impact of urbanization on energy intensity in SAARC countries: an empirical analysis

Abstract

This study aims to examine the effect of urbanization on energy intensity in SAARC countries and compare Sri Lanka’s status with other SAARC countries between 1990 and 2015. This study used the urban population as a proxy variable for urbanization. Other control variables in the model are per capita income and squared value of per capita income (PCI), capital formation, industrialization, labour and carbon dioxide emissions, squared value of carbon dioxide emissions and six country dummy variables to detect country effect. Fixed effects model and Least Squared Dummy Variable model (LSDV) with country-urbanization interactive variables model were employed in the estimation. Our results indicate urbanization in the SAARC region increases energy intensity in all countries except Sri Lanka. With urbanization, Pakistan has the fastest increase in energy intensity. Our results confirm Environmental Kuznets Curve (EKC) hypothesis which is consistent with the literature. Industrialization and labour force participation lower energy intensity. Carbon dioxide emission and the squared value of that variable show a U-shaped behaviour with energy intensity. This implies higher energy use further increases energy intensity and needs mitigating policies to curb higher energy use. According to the results, Pakistan has the lowest energy intensity and Sri Lanka has higher energy intensity among SAARC countries. Sri Lanka needs to lower the energy intensity by reducing inefficient energy use in all possible sectors such as transportation. Since urbanization significantly reduces energy intensity in Sri Lanka, efficient public transportation coupled with planned urbanization will help to lower our energy intensity in the long run.