The Relationship between Aggregated-Disaggregated Energy Consumption and Economic Growth in Turkey

Abstract

(ProQuest: ... denotes formulae omitted.)1.IntroductionEnergy has become a vital resource for generating mechanical power in the economic development process since the Industrial Revolution in the late 18th century. The Industrial Revolution initiated technological innovations and mass production techniques as well as contributing a great increase in the demand for labor, capital, and energy resources. Although the Industrial Revolution greatly increased energy demand in the production process, an extensive debate remains as to the role of energy in economic development. In the second half of the 18th century, physiocrats were the first to see energy as a source of power in agriculture, asserting that all energy came from the land, rain, and sun (Ayres, Van den Bergh, Linderberger & Warr, 2013: 81). The neoclassical dominant view contends that energy is an endogen factor in the production process and its role is unimportant in growth. The most of the empirical studies based on the neoclassical model mainly analyzed how economic growth affected energy consumption rather than vice versa. Most neoclassical economists, with the notable exceptions of Jevons and Hotelling, persistently either ignored or lessened the role of energy in such growth and assumed that energy was not a production factor (Yaprakli & Yurttancikmaz, 2012: 197). Following the oil crises in the 1970s, some economic theories considered energy to be a factor in the production of economic resources that contributed to the production of goods and services. Regarding the potential association between energy and growth, many different views have been put forth in the literature. However, today the broadly accepted view is that that energy is an essential resource in the production process. Georgescu-Roegen (1975), in his fund-flow model, pointed out that energy plays a key role in transforming inputs into outputs in the production process. Many economists considered Georgescu-Roegen's fund-flow model to be more advanced than the neoclassical models. Wrigley (1988), Allen (2009), and some economic historians also pointed out that energy has played a key role in economic development and in explaining the different growth pattern after the Industrial Revolution. Stern (2004) developed a modified version of Solow's (1956) neoclassical growth model by adding energy as an input and considered energy as an essential and complementary factor, but not a substitute, for capital and labor factors. In Stern's (2004) general production function: (Qi,.....,Qu)' = /(A, Xi,.....,Xu, Ei,.....,Eu) Qi are different outputs such as goods and services: A is the state of technology; Xi are various inputs such as capital and labor; and Ei are various energy inputs such as oil, electricity, and coal. Except in micro-economic activities in the service sector, all kinds of production methods using labor and capital in macro-economic activities require energy. Energy is not only an exogenous but also an essential factor in the production and growth process, particularly in the service and production sectors, because not only labor and capital, but also energy is a factor in the production function, as indicated in some biophysical production models. In some biophysical models, energy is the most important and primary factor affecting growth, and labor-capital factors are the secondary factors processing energy. According to ecological economists, technological developments and innovations have little effect on efforts to increase productivity, but energy and energyrelated resources play a major role in the growth and production process (Stern, 2011: 30).Since initiating trade liberalization reforms after 1980, Turkey has shifted to a free market economy and accomplished rapid socioeconomic development. According to World Development Indicators (WDI) averages, GDP growth reached nearly 4.2% (5.4%) a year for the 1980-2014 (2010-2014) period. With a population of 78. …