Abstract
This study compares and contrasts the changes in efficiency and other exogenous Underlying Energy Demand Trends (UEDT) in estimated energy demand functions for South Korea and Indonesia. This is to answer the key research questions, which are to investigate; (1) the similarities and differences in the relative trends and movements of the per capita energy consumption and energy intensities for both countries (2) the best method for estimating the price and income elasticities of demand for energy, and the UEDT in all sectors of countries (3) the similarities and differences in the magnitudes of price and income elasticities of demand, and their likely implications (4) the similarities and differences of the shapes of the UEDT for all sectors of both countries. A comparison of the trends in the per capita energy consumption shows that the relative trends in energy consumption for the two vary significantly for all the sectors except the residential sector. South Korean energy consumption was more than three times that of Indonesia. However, the relative energy intensities reveal that in South Korea this was generally lower than in Indonesia. Also, the decline in energy intensity was faster in the former than in the latter. The Johansen's Cointegration and Harvey's structural time series models are used to estimate the energy demand functions. Generally, the results suggest that the STSM is the preferred approach given they are more statistically robust and consistent with underlying economic theory. Therefore, the STSM results reveal that for both countries energy demand was more sensitive to changes in income than real energy prices. The analysis suggests that the trends in energy imports and per capita energy consumption require additional efforts to curb growing energy imports and consumption. They also suggest the need to promote energy conservation and efficiency. Significant increases in energy prices and taxes are also needed in order to get the desired responses. Moreover, there is the need for other policies to complement the market-based policies.