Does Trade Liberalization Effect Energy Consumption? Gairuzazmi M.

Ghani, Department of Economics, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, P.O. Box 10, 50728, Kuala Lumpur, Malaysia. email: gairuzazm@iium.edu.my Telephone: 60-3-61964627

Abstract The effect of trade liberalization on the environment can be directly linked to energy consumption, because energy consumption and production are the underlying cause of most pollutants that harm the environment. The descriptive statistics show that average annual growth of energy consumption per capita after trade liberalization varies among countries; hence it is a possibility that the effect of trade liberalization is conditional on factors other than liberalization per se. The regression results show that trade liberalization per se does not effect the growth of energy consumption of the developing countries analyzed, but its interaction with capital per labor reduces the growth of energy consumption as capital per labor increases. However, the effect is only significant after a certain minimum threshold level capital per labor is reached. On the other hand, economic growth increases energy consumption and its effect is not conditioned on trade liberalization. These two different effects mean that, with regards to energy consumption, countries at a higher level of economic development are more likely to reap the benefit of liberalization relative to less developed countries.

Keywords: Energy consumption; Trade liberalization.

1. Introduction The effects of trade openness and liberalization on the quality of the environment have been widely examined (see Grossman and Krueger, 1993; Antweiler et al., 2001; Frankel, 2009). However, discussion on a related issues the effect of trade liberalization on energy consumption has been sparse, even though it is as important (Cole, 2006). Energy consumption, especially the burning of fossil fuels is the major underlying cause of most pollutants (Doney et al., 2009; Tan, 2009; Jacobsen, 2009). Carbon dioxide, sulfur dioxide, and nitrogen oxides, among others, are released into the air when gasoline is burned in cars and when electricity is generated from burning coal or natural gas. These gases harm the environment if released uncontrollably. This means, at least partially, that the effect of trade liberalization (henceforth liberalization) on the environment is a consequence of energy consumption. Instead of studying the consequence, this paper examines the effect of liberalization on one of the causes of pollutants and environmental degradation: energy consumption.1 Liberalization may affect energy consumption because it induces change in trade policies that are related to energy use, such as reduction in tariff and non-tariff barriers on energy efficient products. Liberalization may also affect energy consumption indirectly through changes in economic growth, environmental regulations, implementation of ecologically beneficial management practices, reallocation of resources, etc. It is also expected liberalization will bring about institutional changes which will affect the transfer of energy-saving technologies that can help to improve energy efficiency. The method used for analysis is based on Kneller et al. (2008), Calderona and Poggio (2010) and Ghani (2011). The method takes into account the problem of measuring liberalization date by grouping the years of liberalization into the five-year period before, during, and after

liberalization. This is important, as liberalization processes are usually gradual; it takes a few years to complete instead of being a one-period shock to the economy. The method also differentiates between liberalization, which is the exercise that leads to market openness; and trade openness, which measures the level of market openness of an economy.

2. Background Liberalization leads to and consists of policies that reduce and/or remove tariff and non-tariff barriers for the free exchange of goods. It may also include policies that open up the economy to foreign investment. It has been argued that liberalization increases economic growth and improve welfare because of the static and dynamic gains from trade. Static gain may result from the reduction in costs due to economies of scale, efficiency gains from exploiting comparative advantage, reduction in distortion from imperfect competition and increased product variety. Among the dynamics gains are the transfer and adoption of better management practices and energy-efficient technologies. However, conclusions from theoretical and empirical studies have been mixed on the relationship between liberalization and economic growth. Grossman and Helpman (1991) theoretically show a positive association, while Redding (2002) shows otherwise. Empirically, Wacziarg (2001) and Greenaway et al. (2002) estimate a positive relationship, but Rodriguez and Rodrik (2001) argue that the positive relationship between liberalization and economic growth is less robust than claimed. This is due to the difficulties in measuring openness, statistical sensitivity of specifications, collinearity of protectionist policies with other bad policies, and other econometric difficulties. Kneller et al. (2008) shows that improvement in economic growth after liberalization episodes have been conditioned upon myriad of factors such as level of education, human capital, and institutionals and physical

barriers to trade. Furthermore, even if there are improvements in welfare, liberalization is expected to create potentially difficult adjustment costs, especially in the short run. Studies directly examine the impact of liberalization on energy consumption is sparse. However, as most pollutants that negatively affect the environment are a consequence of energy consumption, the effect of liberalization on energy consumption should be similar to the effect of liberalization on the environment, and this has been studied extensively. This means that the literature on the nexus between liberalization and the environment can be followed in postulating the effect on energy consumption (see Cole, 2006; Hbler and Keller, 2010). Following Grossman and Krueger (1993) and Antweiler et al. (2001), there are three ways in which the environment can be affected by liberalization. The three ways are through changes in the growth of the economy (scale effect), through changes in the structure of the economy (composition effect), and through changes in the techniques and technologies used for production (techniques effect). These three effects influence energy consumption differently. It is posited that liberalization will increase economic activities because of static and dynamic gains from trade. The increase in economic activities, which increases energy consumption, is the scale effect. The direction of the composition effect on energy consumption depends on how the structure of the economy is affected after liberalization. And this depends on the comparative advantage of the country. A country with comparative advantage in energy-intensive industries will increase its energy consumption, and vice versa. In most cases, the technique effect reduces energy consumption as improvements in technology due to technology transfer improves energy efficiency.2 Liberalization may also induce the technique effect indirectly through the increase in income because of static and dynamic gains from trade. Higher income may change consumer

preferences, inducing the government to reform environmental and energy regulations such that they benefit the environment. The relative strength of these three different effects determines the total effect of liberalization on energy consumption. Following the environmental Kuznet curve (EKC) hypothesis, the relative strength of these three effects are related to the level of economic development or income per capita of the country at a lower level of per capita income, the scale effect generally dominates; therefore, increases in income will increase energy consumption. At higher levels of development, structural change towards information-intensive industries and services, coupled with increased environmental awareness, enforcement of environmental regulations, better technology and higher environmental expenditures result in the leveling off and gradual decline of environmental degradation (Panayotou, 1993). Using Antweiler et al.s (2001) theoretical framework, Cole (2006) shows that trade openness increases energy use. However, liberalization and openness are not the same, as liberalization involves the exercises of changing policies and structure of the economy. Liberalization may also induce the flows of foreign direct investment (FDI) into the economy. Following the pollution haven hypothesis (PHH), reallocation of resources and transfer of technology through FDI may lead to more energy use and/or pollution either as a result of relocation of energy intensive and/or polluting industries from countries with strict environmental policy or due to increased production in energy intensive and/or dirty industries (Mukhopadhyay and Chakraborty, 2005). Using data from 20 developing countries, Mielnik and Goldemberg (2002) shows that FDI reduces energy intensity, however, using panel data techniques Hbler and Keller (2010) show no robust energy reducing effect of FDI inflows in developing countries. The interactions of FDI inflows with country-specific characteristics also

yield no significant results. One possible explanation is that the energy-saving technology transfer from aggregate FDI inflows is too small to yield significant effects in the macro analysis. Another important related study focuses on the impact/causality of economic growth on energy consumption. Similarly, the results have been inconclusive; causality studies have shown both bi-directional and unidirectional causality either from energy consumption to growth or from growth to energy consumption (Belke et al., 2011). The conflicting influences of liberalization on the environment and energy consumption mean that the effect of liberalization on energy consumption requires empirical investigation.

3. Empirical Method The method used for analysis follows the approach of Kneller et al. (2008), Calderona and Poggio (2010) and Ghani (2011). The method takes into account countries heterogeneity in studying the effect of liberalization on economic growth. The approach focuses on changes within country across time for countries that have liberalized their trading regime. The empirical model tests whether there is a difference in the growth of energy consumption in the five-year period before, during, and after liberalization. The following base model is used: 3 Eit = 0 + 1i + 2t + 3 LIBit +it, (1)

where E is the average growth of energy consumption for the three five-year periods. LIB is the liberalization dummy, which equals zero for the five-year period before liberalization and equals one for the five-year period during and after liberalization. The coefficient 3 indicates whether the average growth of energy consumption is significantly different before and after liberalization. If the liberalization process increases energy consumption, 3 will be positive, and

vice versa; 1i and 2t are the country-fixed and time-fixed effects, respectively; and it is the error term. The time periods of liberalization are divided into: 19701974, 19751979, 19801984, 19851989, 19901994, and 19951999. For example, in the case of Albania, the liberalization date is 1992, hence the during liberalization period is 1990-1994; the period before liberalization is 1985-1989; and the period after liberalization is 1995-1999. The division into five-year periods controls for the fact that liberalization exercises are usually spread over a few years instead of being only in the year when they are announced. A period of five years is chosen because Greenaway et al. (2002) shows that the J-curve effect, which is due to liberalization, is completed in about five years. The division also helps in measuring medium-term effects instead of short-term adjustments of the liberalization process. Fifty-four developing countries that have gone through the liberalization processes since the 1970s are analyzed. The selection of countries was subjected to data availability (see Appendix I and II for the countries and liberalization dates). The descriptive statistics of energy consumption for the countries studied (Table 1) show that there are big differences in the average growth and standard deviation of energy consumption across countries for the periods during and after liberalization; there are countries where average energy consumption increases, but there are also countries where average energy consumption decreases. This suggests that the impact may be conditional upon other factors, rather than liberalization per se.4 To take into account the variations, the paper includes the growth of GDP per capita which captures the scale and technique effects; the interaction between the liberalization dummy with economic growth, which help determines whether the effect of liberalization is conditional on economic growth; the ratio of capital per labor which captures the

composition effect; and the interaction between capital per labor with the liberalization dummy which help determines whether the effect on liberalization is conditional on the structure of the economy. Thus, Equation (1) becomes, Eit = 0 + 1i + 2t + 3LIBit + 4Yit + 5LIBit*Yit + 6KLit + 7 LIBit*KLit + it, (2)

where Y is the growth of GDP per capita (henceforth economic growth) and KL is the capital per labor ratio. LIB*Y is the interaction between liberalization and the growth of GDP per capita and LIB*KL is the interaction between liberalization and capital per labor. The data for energy consumption per capita (in kg of oil equivalent per capita) and GDP per capita in constant 2000 U.S. dollars are from the World Banks World Development Indicators. Ratios of capital per labor (in thousand-PPP 2000) are from the Penn World Table extended version (Marquetti and Foley, 2008) and the liberalization dates are from Wacziarg and Welch (2008), which is an extension of Sachs and Warner (1995).

4. Results Table 1 reports the descriptive statistics for average growth of energy consumption before, during and after liberalization. The arithmetic mean for the average growth of energy consumption increases after liberalization and its standard deviation decreases. The mean growth before liberalization is negative at -1.23% but it is positive 5-10 years after liberalization at 1.12%. The standard deviation also differs at 5.62% and 2.45% for the periods before and after liberalization, respectively. However, there are countries where the average annual growth of energy consumption increases after liberalization, and there are also countries where it decreases. Before liberalization, there are 23 countries with negative average annual growth of energy consumption, while 22 countries are positive. In the period 5-10 years after liberalization, there

are 17 countries with average annual growth of energy consumption that are negative, while 37 countries are positive. Consequently, even if the mean increases, it cannot generally be concluded that the growth of energy consumption increases after liberalization. The descriptive statistics provide support for the contention that the effect of liberalization on energy consumption may be conditional upon factors other than liberalization per se.

Table 1: Descriptive Statistics for Average Annual Growth of Energy Consumption per Capita (%) for the Five-Year Period Before, During, and After Trade Liberalization Before During After Liberalization Liberalization Liberalization Mean -1.23 -1.85 1.12 Standard Deviation 5.62 5.21 2.45 Maximum 5.20 7.57 8.02 Minimum -30.89 -22.20 -6.26 Number of Countries with Negative Growth* 23 35 17 Number of Countries with Positive Growth* 22 18 37
Note: * Summations of countries with positive and negative growth are not equal for the period before, during and after liberalization because of missing data for some countries.

Table 2 reports the regressions results with robust standard errors. The base regression with country-fixed effects (column 1) shows that the growth of energy consumption is 1.9% higher per annum for the period during and after liberalization. However, the inclusion of the time-fixed effects (column 2) renders liberalization dummy statistically insignificant. Hence, the other regressions (column 3-7) include both country- and time-fixed effects. Column 3 adds economic growth to the regression; in this case, economic growth is the only significant variable, with a value of 0.64. This means that a 1% increase in economic growth increases the growth of energy consumption by 0.64%. The insignificant of the liberalization dummy implies that liberalization does not influence energy consumption. However, there is a possibility that the impact of liberalization on energy consumption is conditional upon the magnitude of economic growth; hence in column 4 the interaction between liberalization and economic growth is included in the
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regression. Column 4 shows that except for economic growth, with a coefficient of 0.62, the other variables are not significant. Given that there is an interaction term, the significant of the interaction at different values of economic growth needed to be examined. Therefore, we need to examine the conditional effect further.

Table 2: Effect of Trade Liberalization, Economic Growth and Capital per Labor on Energy Consumption
Capital/Labor Capital/Labor Economic Growth & Capital/Labor
-0.009 (-1.08) 0.400*** (3.30) -0.001 (-0.40) -0.001** (-1.99) 0.005 (0.32)

Economic Growth

Liberalization GDP Growth Liberalization x GDP Growth Capital/Labor Liberalization x Capital/Labor Constant Fixed Effect

0.019** (2.01)

-0.011 (-0.62)

-0.010 (-0.71) 0.639*** (5.09)

-0.001 (-0.06) 0.621*** (3.55) 0.045 (0.24)

Economic Growth

Base

Base

-0.022** (-2.55)

-0.012 (-1.45)

-0.001 (-0.94)

-0.002 (-1.20) -0.001** (-2.71)

-0.026** (-2.29) Country

0.049 (1.45)

-0.003 (-0.11)

-0.002 (-0.10)

-0.022 (-1.49)

-0.023 (-1.67)

Country Country & Country & Country Country & Country & & Year Year Year & Year Year Year 156 156 152 152 110 110 108 Observations 0.42 0.57 0.78 0.78 0.56 0.59 0.65 R2 Notes: t-statistic from robust standard error in parenthesis. *, **, *** denote significance at 10%, 5%, and 1% respectively.

The addition of the interaction term means that the marginal effect of liberalization on energy consumption is the summation of the coefficient for liberalization with the multiplication of the coefficient for the interaction term and economic growth. However, unlike our initial

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contention, the marginal effect of liberalization is not significant for the full range of economic growth (covariance between interaction term and economic growth is -0.026). Furthermore, the incremental F-test statistic is 0.36; which means that both liberalization and its interaction with economic growth are not significant in explainig the growth of energy consumption. In the case of the effect of economic growth on energy consumption, the marginal effect for the period before liberalization is the coefficient for economic growth by itself; for the period after liberalization, the marginal effect is the summation of the coefficient for economic growth with the coefficient for the interaction term. Given that the liberalization dummy and the interaction term are not significant, it can be concluded that economic growth by itself effects energy consumption, meaning that column 3 is the better model compared to column 4. The ratio of capital per labor replaces economic growth in column 5. Unlike the results in column 3 and 4, liberalization is significant but negative. However, capital per labor is not significant. Column 6 includes the interaction between liberalization and capital per labor. The inclusion of the interaction term renders liberalization insignificant. Similar with column 5 capital per labor is insignificant, but its interaction with liberalization is significant. The incremental F-statistic testing the appropriateness of the inclusion of liberalization and the interaction term together is 6.06, which indicates the need to include both variables. Given the importance of the interaction between liberalization and capital per labor, Figure 1 shows the conditional marginal effect of liberalization on energy consumption at different values of capital per labor with its standard error band. The coefficient is significant if the band does not include zero. It shows that the marginal effect is significant for capital per labor greater than about 1,000. Table 3 shows the descriptive statistics for the capital per labor ratio data, where more than 90% of the capital per labor are greater than 1,000.

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Figure 1: The Effect of Liberalization on the Growth of Energy Consumption conditioned on Capital per Labor

Table 3: Descriptive Statistics for Capital per Labor Ratio Mean 11127.5 Minimum Standard Deviation 9447.0 Maximum 5th percentile 510.6 10th percentile 35th percentile 5497.9 50th percentile

270.4 47694.0 1611.5 8447.6

In the case of capital per labor; the marginal effect of capital per labor on the growth of energy consumption before liberalization is the coefficient for capital per labor by itself, and the marginal effect of capital per labor after liberalization is the summation of the coefficient for capital per labor with the coefficient for the interactive term between capital per labor and liberalization. Hence, for the period before liberalization, capital per labor is not significant in explaining the growth of energy consumption. After liberalization the marginal effect is -0.003
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with a standard error of -1.81. Hence, a one unit increase in capital per labor reduces the growth of energy consumption after liberalization by 0.3%. Based on the results in column 1 through 6, column 7 includes economic growth, capital per labor, and the interaction between liberalization and capital per labor. It shows that liberalization by itself is still insignificant, economic growth is significant however, its magnitude decrease from 0.64 to 0.40, capital per labor by itself is not significant, but the interaction between capital per labor and liberalization is significant. Figure 2 (based on column 7) shows the conditional marginal effects of liberalization on the growth of energy consumption conditioned on capital per labor. The different with Figure 1 is that the marginal effect is significant when capital per labor is about 5000. Following Table 3, about 30% of the capital per labor ratios are less than 5000. This means that the effect of liberalization is insignificant for countries with low level of capital per labor. In the case of the effect of capital per labor on the growth of energy consumption, the marginal effect is not significant before and after liberalization.

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Figure 2: The Effect of Liberalization on the Growth of Energy Consumption Conditioned on Capital per Labor

5. Conclusion Developing countries liberalize their trading regime expecting that it will improve economic growth and welfare through static and dynamic gain of trade openness and liberalization. One of the widely examined effects of liberalization is on the quality of the environment. However, the general underlying cause of most pollutants which affect the quality of the environment is energy consumption; thereby, the effect of liberalization on the environment can be linked to energy consumption. This paper empirically examined the extent to which energy consumption is effected by liberalization; discussing whether the interactions between liberalization, economic growth, and capital per labor which capture the scale, composition and technique effects influence the growth of energy consumption.
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The empirical analyses show that the growth of energy consumption is not effected by liberalization per se. The effect is conditioned on the magnitude of capital per labor, and it is insignificant at lower levels of capital per labor. Only after reaching the minimum threshold of capital per labor, liberalization is significant in reducing the growth of energy consumption. This minimum threshold means that liberalization may not benefit less developed countries energy consumption. A number of reasons may explain the threshold. Less developed countries may not have the absorptive capacity to benefit from technological transfer of energy-saving technologies, products and/or processes brought about by liberalization. Given that capital per labor is related to economic development, only after a certain minimum level of economic development a country has the capability to absorb the transferred technologies. In addition, public environmental awareness of less developed countries is less than the more developed countries (Somanathan, 2010; Sodhi et. al., 2008), hence at lower levels of economic development, environmental issue may not be brought up in liberalization discussion and exercise. Thereby, reduction in tariff and non-tariff barriers of energy efficiency improving and environementally friedly related products may not be included, or prioritized in the agenda of liberalization. Unlike our initial contention, the effect of liberalization on energy consumption is not conditioned on economic growth. Instead, economic growth by itself increases the growth of energy consumption; the effect is not conditioned on whether liberalization process has taken place or not. Taking into consideration that economic growth by itself increases energy consumption, a less developed country that liberalizes its market may suffer from environmental degradation before it can reaps the benefit of liberalization. In order to reach the minimum threshold level of capital per labor, the economy needs to grow, and the growth will induce

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greater energy consumption. In fact following the pollution haven hypothesis, less developed countries are posited to be worse off by liberalization as their comparative advantage is in pollution intensive industries. These effects suggest that liberalization discusssion and exercise need to take into account the implications of trade liberalilzation on energy consumption and consequently on the environment. For example, there is a need to set higher priority on tariff and non-tariff barriers of products and technologies that improve energy efficiency during liberalization discussion and exercise. Indeed, energy-efficient product standards and labeling are an important tool and policy mechanism to reduce greenhouse gas emissions (ICF International, 2011). The minimum

threshold of capital per labor suggest that countries and international organisations that promote trade liberalisation in developing countries need to take great care in the sequencing of liberalization.5

Acknowledgements I would like to extend my gratitude to the two anonymous referees of the journal for their useful comments and suggestions. Any errors and/or omissions in this work are attributable solely to the author.

References Antweiler, W., Copeland, B.R., Taylor, M.S., 2001. Is free trade good for the environment? American Economic Review 91(4), 877908. Belke, A., Dreger, A, de Haan, C., 2011. Energy Consumption and Economic Growth: New Insights into the Cointegration Relationship. Energy Economics 33(2011), 782-789. Calderona, C. and Poggio, V. 2010. Evidence on the Role of Complementarities for CAFTA-DR Countries. Policy Research Working Paper WPS5426, World Bank.

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Cole, M. 2006. Does Trade Liberalization Increase National Energy Use? Economics Letters 92(1), 108-112. Doney, S. C., Balch, W., Fabry, V., Feely, R., 2009. Ocean Acidification: A Critical Emerging Problem for the Ocean Sciences. Oceonography 22(4), 16-25. Frankel, J.A., 2009. Global Environment and Trade Policy. Belfer Center for Science and International Affairs Discussion Paper #09-01. Ghani, G., 2011. The Impact of Trade Liberalisation on the Economic Performance of OIC Member Countries. Journal of Economic Cooperation and Development 32(1), 1-18. Greenaway, D., Morgan, W., Wright, P., 2002. Trade Liberalisation and Growth in Developing Countries. Journal of Development Economics, 67(1), 229-244. Grossman, G.M., Elhanan, H., 1991. Innovation and Growth in the Global Economy Cambridge, MA: The MIT Press. Grossman, G.M, Krueger A.B., 1993. Environmental impacts of a North American free trade agreement. In: Garber P (ed) The MexicoUS free trade agreement. MIT Press, Cambridge MA. Hbler, M., Keller, A., 2010. Energy savings via FDI? Empirical evidence from developing countries. Environment and Development Economics 15(1), 59-80. ICF International., 2011. Reducing Trade Barriers for Environmental Goods and Services in APEC Economies: Mapping Execercise for Energy Efficient Products- Final Report. Submitted to Asia-Pacific Economic Cooperation (APEC) Expert Group on Energy Efficiency and Conservation Energy Working Group. Jacobson M.Z., 2009. Review of Solutions to Global warming, Air Pollution, and Energy Security. Energy and Environmental Science 2,148-173. Kneller, R., Morgan, C.W., Kanchanahatakij, S., 2008. Trade Liberalisation and Economic Growth. World Economy 31(6), 701-719. Marquetti, A., Foley, D., 2008. Extended Penn World Tables Version 3.0. Economics Department, New School, New York. Mielnik, O.,Goldemberg, J., 2002. Foreign Direct Investment and Decoupling between Energy and Gross Domestic Product in Developing Countries. Energy Policy 30(2), 87-89. Mukhopadhyay, K., Chakraborty, D., 2005. Is liberalization of trade good for the environment? Evidence from India. Asia-Pacific Development Journal 12 (1), 109-136.

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Panayotou, T., 1993. Empirical Tests and Policy Analysis of Environmental Degradation at Different Stages of Economic Development. Working paper WP238, International Labor Office, Geneva, Switzerland. Redding, S., 2002. Path Dependence, Endogenous Innovation, and Growth. International Economic Review 43(4), 121548. Rodriguez, F., Rodrik, D., 2001. Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence. NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 261-338 National Bureau of Economic Research, Inc. Sachs, J.D., Warner, A., 1995. Economic Reform and the Process of Global Integration. Brookings Papers on Economic Activity 1, 1118. Sodhi N.S., Acciaioli, A., Erb, M., Tan, A.K. (eds) (2008) Biodiversity and Human Livelihoods in Protected Areas: Case Studies from the Malay Archipelago. Cambridge University Press, Cambridge. Somanathan, E., 2101. Effects of Information on Environmental Quality in Developing Countries. Review of Environmental Economics and Policy 4(2), 275-292. Tan, P. 2009. An Accounting of the Observed Increase in Oceanic and Atmospheric CO2 and An Outlook for the Future. Oceanography 22(4), 2635. Wacziarg, R., Welch, K.H., 2008. Trade Liberalization and Growth: New Evidence. World Bank Economic Review 22(2), 187-231. Wacziarg, R. 2001. Measuring the Dynamic Gains from Trade. World Bank Economic Review 15(3), 393429.

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Footnotes 1. Green energy may not pollute the environment, but for the developing countries and time period investigated, green energy accounted for a very negligible share of energy production and consumption. 2. However, there is a possibility that newly introduced technologies are more energyintensive than the old technologies; hence, the change in technique increases energy consumption. 3. This is equivalent to a first-difference regression in growth or a difference-in-difference regression in the level of income. We refer the reader to Kneller (2008) for other advantages of the method. 4. The literature on trade liberalization has also raised the issue of the validity of the liberalization date used, and that the use of dummy to indicate trade liberalization may not measure the intensity of liberalization. Other studies have used the ratio export plus imports to GDP to control for the liberalization measurement issue. 5. Santos-Paulina and Thirlwall (2004) argue that liberalization has had a net positive effect on income growth but the balance of trade consequences may reduce growth. They conclude that countries and international organisations that promote trade liberalization in developing countries need to carefully sequence the liberalisation of exports and imports in order to achieve a balance between export and import.

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Appendix I

Average Annual Growth of Energy Consumption per Capita (%) for the Five-Year Period Before, During, and After Trade Liberalization
Before Liberalization During Liberalization After Liberalization Before Liberalization During Liberalization After Liberalization

Country

Country

1. Albania 2. Argentina 3. Armenia 4. Azerbaijan 5. Bangladesh 6. Benin 7. Bolivia 8. Botswana 9. Brazil 10. Bulgaria 11. Cameroon 12. Chile 13. Colombia 14. Costa Rica 15. Cote d'Ivoire 16. Czech Rep 17. Jamaica 18. Egypt 19. El Salvador 20. Ethiopia 21. Georgia 22. Ghana 23. Guatemala 24. Honduras 25. Hungary 26. Jamaica 27. Kenya

-2.64 0.06 -30.89 -11.05 1.48 -0.90 2.68 1.67 0.16 -0.26 1.83 -2.28 0.61 -0.01 -1.85 -0.45 -1.44 -1.21 -19.35 0.11 -4.40 0.21 1.38 -6.05 0.92

-11.62 1.45 7.57 -7.58 2.16 -1.44 -2.20 -0.20 -5.46 -1.00 0.41 0.47 1.12 -0.45 -3.76 -0.94 4.67 -3.33 -0.21 -8.23 -2.67 -0.01 -0.34 -3.55 2.74 -0.79

6.32 1.23 3.08 1.92 3.25 1.88 3.42 -0.72 2.30 -2.25 -0.23 -0.51 1.71 -0.23 3.65 -0.84 2.08 2.16 3.85 0.23 1.39 2.76 1.68 -0.08 0.68 5.10 0.49

28. Kyrgyz Rep.

29. Latvia 30. Lithuania 31. Macedonia 32. Mexico 33. Moldova 34. Morocco 35. Mozambique 36. Nepal 37. Nicaragua 38. Panama 39. Paraguay 40. Peru 41. Philippines 42. Poland 43. Romania 44. Slovak Rep 45. Slovenia 46. South Africa 47. Sri Lanka 48. Tajikistan 49. Tanzania 50. Trin and Tob 51. Tunisia 52. Turkey 53. Uruguay 54. Zambia

2.29 5.20 -2.63 -0.42 -0.25 3.76 -3.66 -1.78 0.38 0.89 0.82 -0.94 0.15 -13.82 -1.29 1.47 3.42 1.98 3.93 -0.75

-22.20 -10.48 -14.38 -0.29 0.38 -16.63 0.11 -0.87 0.68 -0.36 3.27 4.36 -1.42 1.70 -4.97 -8.68 -4.27 -0.13 -0.50 0.17 -1.22 1.19 2.96 -0.68 3.88 -1.73 -1.74

-3.39 -2.48 0.92 1.74 0.63 -6.26 2.12 1.57 0.87 1.21 -1.62 0.08 1.91 1.63 -0.66 -2.85 0.09 2.93 -0.67 4.66 -0.33 2.15 8.02 3.67 1.02 -1.08 -1.65

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Appendix II

Date of Liberalization
Liberalization Date Liberalization Date Liberalization Date Liberalization Date 1992 1991 1991 1991 1991 1996 1995 1992 1989 1989 1990 1993

Country

Country

Country

Country

1. Albania 2. Argentina 3. Armenia 4. Azerbaijan 5. Bangladesh 6. Benin 7. Bolivia 8. Botswana 9. Brazil 10. Bulgaria 11. Cameroon 12. Chile 13. Colombia 14. Costa Rica

1992 1991 1995 1995 1996 1990 1985 1979 1991 1991 1993 1976 1986 1986

15. Cote d'Ivoire 16. Czech Rep 17. Jamaica 18. Egypt 19. El Salvador 20. Ethiopia 21. Georgia 22. Ghana 23. Guatemala 24. Honduras 25. Hungary 26. Jamaica 27. Kenya 28. Kyrgyz Rep.

1994 1991 1989 1995 1989 1996 1996 1985 1988 1991 1990 1989 1993 1994

29. Latvia 31. Lithuania 31. Macedonia 32. Mexico 33. Moldova 34. Morocco 35. Mozambique 36. Nepal 37. Nicaragua 38. Panama 39. Paraguay 40. Peru 41. Philippines 42. Poland

1993 1993 1994 1986 1994 1984 1995 1991 1991 1996 1989 1991 1988 1990

43. Romania 44. Slovak Rep 45. Slovenia 46. South Africa 47. Sri Lanka 48. Tajikistan 49. Tanzania 50. Trin and Tob 51. Tunisia 52. Turkey 53. Uruguay 54. Zambia

Source: Wacziarg and Welch (2008)

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