Estimation of the electricity demand function using a lagged dependent variable model

내생시차변수모형을 이용한 전력수요함수 추정

Ahn, So-Yeon;Jin, Se-Jun;Yoo, Seung-Hoon

  • Received : 2016.04.13
  • Accepted : 2016.06.16
  • Published : 2016.06.30


The demand for electricity has a considerable impact on various energy sectors since electricity is generated from various energy sources. This paper attempts to estimate the electricity demand function and obtain some quantitative information on price and income elasticities of the demand. To this end, we apply a lagged dependent variable model to derive long-run as well as short-run elasticities using the time-series data over the period 1991-2014. Our dependent variable is annual electricity demand. The independent variables include constant term, real price of electricity, and real gross domestic product. The results show that the short-run price and income elasticities of the electricity demand are estimated to be -0.142 and 0.866, respectively. They are statistically significant at the 5% level. That is, the electricity demand is in-elastic with respect to price and income changes in the short-run. The long-run price and income elasticities of the electricity demand are calculated to be -0.210 and 1.287, respectively, which are also statistically meaningful at the 5% level. The electricity demand is still in-elastic with regard to price change in the long-run. However, the electricity demand is elastic regarding income change in the long-run. Therefore, this indicates that the effect of demand-side management policy through price-control is restrictive in both the short- and long-run. The growth in electricity demand following income growth is expected to be more remarkable in the long-run than in the short-run.


electricity demand function;price elasticity;income elasticity;short-run;long-run;lagged dependent variable model


  1. Agthe, D.E., Billings, R.B. Dynamic Models of Residential Water Demand. Water Resources Research, Vol.16, pp.476-480, 1980.
  2. Alberini, A., Filippini, M. Response of residential electricity demand to price: The effect of measurement error, Energy Economics, Vol.33, pp.889-895, 2011
  3. Dilaver, Z., Hunt, L.C. Modelling and forecasting Turkish residential electricity demand. Energy Policy, Vol.39, pp.3117-3127, 2011
  4. Kim, H.M., Kim, I.G., Park, K.J., Yoo, S.H. The effect of temperature on the electricity demand: An empirical investigation. Journal of Energy Engineering, Vol.24, No.2, pp.167-173, 2015.
  5. Korea Energy Economics Institute, Price elasticity of demand and the tariff adjustment plan. 1996.
  6. Korea Energy Economics Institute, The direction of effective power demand management policy in domestic industrial sector. 2013.
  7. Korea Energy Statistics Information System,
  8. Kwon, O.S., Kang, H.J., Kim, Y.G. Electricity demand and the impact of pricing reform: an analysis with household expenditure data. Environmental and Resource Economics Review, Vol.23, No.3, pp.409-434, 2014
  9. Lee, J.S., Heo, E.N. A Study on the long-run and Short-run elasticity of electricity demand in Korea. Journal of The Korean Society of Mineral and Energy Resources Engineers, Vol.35, No.2, pp.149-156, 1988.
  10. Lee, M.H. An analysis on the effects of higher power rates on supply price and power savings for Korean manufacturing sector. Environmental and Resource Economics Review, Vol.23, No.1, pp.43-65, 2014.
  11. Lim, K.M., Lim, S,Y., Yoo, S.H. Short-run and long-run elasticities of electricity demand in the Korean service sector. Energy Policy, Vol.67, pp.517-521, 2014.
  12. Lim, S.Y., Lim, K.M., Yoo, S.H. Estimation of residential electricity demand function using cross-section. Journal of Energy Engineering, Vol.22, No.1, pp.1-7, 2013.
  13. Lim, S.Y., Kim, H.Y., Yoo, S.H. households' willingness to pay for the residential electricity use. Journal of Energy Engineering, Vol.22, No.2, pp.141-147, 2013.
  14. Ministry of Trade, Industry and Energy, Korea. The 7th basic plan for long-term electricity supply and demand. 2015.
  15. Na, I,G., Seo, J.H. Elasticities in electricity demand for industrial setor. Environmental and Resource Economics Review, Vol.9, No.2, pp.333-347, 2000.
  16. Narayan, p., Smyth, R. The residential demand for electricity in Australia: an application of the bounds testing approach to cointegration. Energy Policy, Vol.33, pp.467-474, 2005.
  17. Yoo, S.H., Lee, J.S., Kwak, S.J. Estimation of residential electricity demand function in Seoul by correction for sample selection bias. Energy Policy, Vol.35, pp.5702-5707, 2007.


Supported by : 서울과학기술대학교