Международный журнал экономики и менеджмента

Does the Pattern of Energy Use in Ethiopia Follow Fuel Stacking Hypothesis in Woliso Town?

Abstract

Hundaol Abdissa

This study analyzed whether pattern of fuel use follow the fuel stacking hypothesis and factors that affect household fuel use in Woliso town by using cross-sectional data of 2018 for different sources of energy using the Linear Approximation Almost Ideal Demand System (LAAIDS). An estimate of the model is constrained to comply with neoclassical theoretical restrictions on demand, and the model is estimated using Iterative Seemingly Unrelated Regression (ISUR). The result shows that households do not completely switch to consumption of new energies as the energy ladder hypothesis suggests rather diversify their energy consumption in a process of fuel stacking (energy mix). Additionally, the expenditure elasticity’s of demand for energies are expenditure elastic. Not only this, but also, the cross-price elasticity’s of demand for energy sources indicate that there exist energy substitution and complementarity in the study area. Furthermore, we identified prices of all energy sources (except kerosene), household total energy expenditure, and years of education, family size, and residence type as the main determinants of expenditure share of energy sources. We recommend making modern fuels easily accessible, affecting significant factors of household fuel use, environmental related rules and regulations very essential.