Common Trends and Country Specific Heterogeneities in Long-Run World Energy Consumption

We employ a semiparametric functional coefficient panel approach to allow an economic relationship of
interest to have both country-specific heterogeneity and a common component that may be nonlinear in
the covariate and may vary over time. Surfaces of the common component of coefficients and partial
derivatives (elasticities) are estimated and then decomposed by functional principal components, and we
introduce a bootstrap-based procedure for inference on the loadings of the functional principal
components. Applying this approach to national energy-GDP elasticities, we find that elasticities are
driven by common components that are distinct across two groups of countries yet have leading
functional principal components that share similarities. The groups roughly correspond to OECD and
non-OECD countries, but we utilize a novel methodology to regroup countries based on common energy
consumption patterns to minimize root mean squared error within groups. The common component of
the group containing more developed countries has an additional functional principal component that
decreases the elasticity of the wealthiest countries in recent decades.