Energy Consumption Modeling in the Western Balkan Countries Using a Top-Down Approach

Abstract

This paper investigates the relationships between energy consumption and GDP growth for 6 Western Balkan countries over 10 years period from 2005 to 2014. The countries under consideration are: Albania, Bosnia and Herzegovina, Croatia, Serbia, Montenegro, and Macedonia, FYR. The aim of this study is to evaluate the energy demand across time and within these countries. The other variables that are considered in the model are the Electricity use per capita, the Oil price referred to Crude Oil International markets price expressed in USD and the exchange rate. Recently, numerous empirical studies have been conducted to detect this relationship, but not specifically to the Western Balkan region. There are general characteristics, due to the common historical background, but also specific patterns of the economic structure shaping the energy demand of each country. The main approaches to energy demand modeling are the Bottom-up and Top Down approaches. Currently important research is conveying also toward the Hybrid models. The demand in this countries is very susceptible to external oscillations, leading to severe exogenous impacts on the long term equilibrium, fitting more towards a top down macroeconometric model.