Aggregate and regional demand for electricity in Malaysia

Abstract

The main objective of this paper is the analysis of electricity consumption in Malaysia as a whole and its three regions, namely, Peninsular Malaysia, Sabah and Sarawak. This analysis has been carried out using distinguished data in sectoral level for 44 quarters (2000Q1-2010Q4). For this purpose, two log-log static and dynamic panel demand functions are estimated. The dynamic model, which is based on a partial adjustment approach, is used to compare with the static model. The aggregate and the three regional models are estimated based on their economic sectors in both the dynamic and static methods. This study seeks to reveal some features of electricity consumption in Malaysia and its regions. It is found that the short and long- run price elasticities of electricity demand in all regions of Malaysia are inelastic. Consumers’ responsiveness to changes in electricity prices in the short-run is low, while they have a high response to the long-run changes in the entire Malaysian economy and its regions. This means that, while the short and long-run price elasticities of electricity demand are lower than one, the magnitudes of the long-run elasticities are greater than the short-run elasticities. Moreover, all elasticities in the dynamic models are smaller than the static models. The estimated short and long-run cross-price elasticities of Liquefied Petroleum Gas (LPG) are negative which suggests that LPG and electricity are complementary goods.