The Determinants of Energy Consumption: The Case of The Western Balkans.

Abstract

This study investigates the key determinants of energy consumption in five Western Balkan countries—Albania, Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia—during the period 2007 to 2022. These countries, characterized by transitional economies and infrastructural limitations, face increasing pressure to meet rising energy demands. Utilizing an unbalanced panel dataset and applying a Fixed Effects Model, the research assesses the impact of four explanatory variables: foreign direct investment (FDI), gross domestic product (GDP) growth, urban population, and average winter temperatures. The empirical results indicate that both FDI and urbanization exert a significant positive influence on energy consumption, reflecting the role of industrial expansion and increased urban activity. Conversely, higher average winter temperatures are associated with decreased energy demand, likely due to reduced heating needs. Notably, GDP growth does not demonstrate a statistically significant effect, which may be attributed to structural changes in the region's economic composition. These findings offer valuable insights for policymakers aiming to design effective, data-driven strategies for sustainable energy planning in the Western Balkans.