The Causality Link Between Electricity Consumption and Economic Growth in Turkey: Evidence from ARDL Bounds Testing Procedure

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(ProQuest: ... denotes formulae omitted.)1.IntroductionThe level of energy production and consumption is widely accepted as an important indicator to stimulate the level of socio-economic development process (Ghosh, 2002: 125). The International Energy Agency (IEA) (2016) also reports that energy is the primary factor of the production and economic growth in the developing countries, and Turkey's energy demand is the fastest growing one among the member countries. Several analytical studies mostly dealt with the different types of energy sources (renewable - hydro, solar, geothermal, nonrenewable -gas, oil and coal) and economic growth relations in the literature emphasized the interaction between energy and growth to better understand the causality link between them. However, a limited number of some studies mainly focused on the association between electricity consumption (EC) and economic growth (Y) in a causality manner (cause and effect) in developed and developing countries. According to World Development Indicators (WDI) (2016), Turkey as a developing country with a population of 79.3 million people equivalent to the 1.1% of the whole World population is listed as the 18th biggest economy in the world by GDP. Due to relatively high growth rate of the urbanizing population and economic activities, the energy demand of Turkey is increasing rapidly year by year. Turkey's annual percentage growth rate of GDP is 4.5% (5.4) from 1960 to 2014 (2010 to 2014). Over the same period, the growth rate of net EC is 8.7% yearly on average. In the last five years, average growth rate of net EC is 5.8%.The Turkish Ministry of Energy and Natural Resources (MENR) (2014) reports that electricity demand has steadily increased and gross EC is estimated to increase by about 6% per year for next 5 years. Turkey's gross EC in 2000, 2005, 2010, 2014 was 128, 160, 210, 257 billion kWh. Furthermore, it is only since the last 15 years, the gross EC has increased nearly 100%. The Turkish Ministry of Foreign Affairs (2016) reports that Turkey became the second country after the China, in terms of electricity demand increase in the World since in 2005. Turkey currently produces only 26% of total EC by domestic resources, the most of the energy demand is provided by imports. As of 2014 in Turkey, the share of natural gas, coal and hydro in total electricity production are 121, 76 and 41 billion kWh. At present, around 48% of total electricity production relies directly on imported natural gas (TEIAS, 2014: 13). Due to continuously increasing EC and demand, Turkey is considered as one of the dynamic energy dependency economies. The total net EC of Turkey can be divided into five sectors in 2014 -housing, service-commerce, government, public street lighting and industry. The consumption from the housing represents 22.3% (46 billion kWh) of overall consumption, the service-commerce sector 19.2% (40 billion kWh), the government sector 3.9 (8.1 billion kWh), 1.9% (4 billion kWh) street lighting and 47.2% (98 billion kWh) industry sector. Electricity is the largest (almost 50%) energy source for industry. In order to increase domestic electricity supply, to generate a more reliable and competing energy market, Turkey issued the Electricity Market Law numbered as 4628 in 2001 and the Electricity Market Law numbered 6446 (EML) in 2013 (TETAS, 2014: 9). Due to privatization and encouraging private investors, Turkey steadily increased the share of the private investors in electricity production and privatized thermoelectric and hydroelectric plants. After the Electricity Market Laws and new regulations in liberalization programs, the share of electricity produced by the private sector increased from 57% in 2003 to 72% in 2014.The study is organized as follows: the first part presents some crucial points regarding the causality link between Y and EC in the Turkish economy. The second part overviews the period of data, methods and findings of the relevant empirical studies undertaken in both Turkey and various countries. …