Direction of Technical Change and Energy Efficiency: Empirical Evidences at the Global Level

Energy-saving technical change makes it possible to substitute energy inputs for non-energy inputs, thereby determining the effectiveness of sustainable development policies. Total factor productivity (TFP) is enhanced when technical change coordinates with input mix. The present study analyzes the direction of technical change, its coordination with input mix and its association with energy efficiency at the global level and for different income groups of economies from 1993 to 2013. Malmquist productivity index and data envelopment analysis have been used to compute the direction of technical change and energy efficiency, respectively. The empirical results confirm that the direction of technical change coordinated with the input mix for all sample of economies in the short-run. This is also observed in the long-run, except for low-income economies. With respect to both labour and capital, energy-saving technical change positively associated with energy-efficiency improvements. For certain countries, the mismatch between technical change and input mix resulted in lower energy efficiency and TFP. Hence, it is necessary that the direction of technical change be consistent with input mix of an economy. JEL Classification: D24, O4, Q4