Exploring the relation of trade-specialisation on structural changes in energy intensity

Abstract

Climate change has increased the interest around energy intensity to many researchers. Understanding the drivers of energy intensity is essential to produce a fitting policy. While structural changes have been acknowledged as drivers of economy-wide energy intensity, it has not been recognised as an influential factor on industry-level energy intensity because there is simply not enough data to do so. To generate a more reliable understanding of the mechanism that drives industries’ energy intensity, I explore the role of international trade on inter-country differences in the energy intensity of industries. The approach in this thesis shows with multiple panel data regressions how changes in trade specialisation in products explain inter-country differences in energy intensity of industries. The results estimate
that an industry’s energy intensity increases when it develops a comparative advantage in products whose production requires lots of energy, ceteris paribus, and decreases when it develops a comparative advantage in products whose production requires little energy. Since the effect of trade specialisation in one product goes on behalf of the effect of trade-specialisation in other products, there is a strong suspicion that there are changing compositions of industries. For policy changes, these results can provide insights into how a centralised approach in trade agreements and a decentralised approach in industry policies can tackle the industry’s energy-intensity problems. In future research, it might
be possible to accurately predict the composition effects by explaining the changes in the energy intensity of products with trade specialisation in products.