Electricity demand of manufacturing sector in Turkey: A translog cost approach

Abstract

This paper models factor demand for manufacturing sector in Turkey. We estimated a translog cost function with four factor consist of capital, labor, intermediate input and electricity over the 1980–2001. Our objective, taking in the consideration electricity as production input, was twofold: on the one hand, to estimate the price elasticity of electricity demand in manufacturing sector, and on the other hand to use cross-price and Morishima Elasticities of Substitution results for structural analysis regarding effects of electricity liberalization which initiated in 2001. Empirical result shows that electricity demand is relatively price sensitive (− 0.85). Our result in terms of electricity price is consistent with the previous studies. While electricity–labor and electricity–capital inputs are complementary, results indicate the existence of substitution possibilities between electricity and intermediate input. This means that changes in electricity prices have impact on labor demand and investment demand. These results have important implications for public policy.