All the analysis is conducted on this transformed series.The
transformed series is used to measure the convergence properties of
energy consumption. 6 If relative energy consumption is found to be
stationary,this suggests that energy consumption across the ASEAN
countries is converging.The transformation has the advantage that it
removes the cross-sectional shocks that affect all the countries in the
panel. For instance,any positive shock to energy consumption across
all the countries will increase the average by the same proportion and
hence leave the relative energy consumption series unchanged (Meng
et al.,2013). This implies that any structural breaks identified in the
transformed series would be country specific.
In order to test the efficacy of this approach in removing cross-
sectional dependence,we conducted the Pesaran(2004) cross sectional
dependence(CD) test on the energy consumption series,
before and after transforming it in to relative energy consumption.
The results are reported in Table 2. The top panel reports the
results for the untransformed energy use series.We note that the
Pesaran CD statistic is highly significant at all the 4 lags,implying a
strong rejection of the null of cross-sectional independence.The
bottom panel reports CD statistics for the transformed series,
where we fail to reject the null of cross-sectional in dependence,
even at 10 percent .These results suggest that cross-sectional
dependence is not present in the data.