Empirical Analysis of Causal Relationship between Electricity Production and Consumption Demand in Turkey Using Cobb-Douglas Model

Energy is one of the most crucial data of economical and social development in Turkey. Therefore, energy planners have to design different policies to direct justifiable energy consumption for which various modeling techniques need to be adopted. In this study, the main idea is the causality relationship between electricity production - consumption demand and economical growth in per capita and aggregate levels in the emerging economies during the period 2003 - 2014 by using Cobb Douglas Model and Granger causality tests. Electricity production and consumption demand in Turkey are studied through economical models for residential and industrial sectors. Industrial sector is the largest electricity consuming sector in Turkey. The economical model developed here focuses on the use of only significant variables that are not collinear. Hence, statistical tests have been used to recommend significant economical models. In Turkey, between 2003 and 2014, while real per capita Gross Domestic Product (GDP) growth averaged 16.3% per annum, annual electricity production and consumption growth averaged 11.67 %. In spite of the fact that real per capita GDP and electricity consumption demand are positively correlated, it is still not clear the direction of causality between real per capita GDP, electricity consumption. The positive impact of electricity production and consumption demand on the economical growth and the bidirectional causality between economical growth and electricity consumption are evaluated. The analysis shows that not all the socio - economic variables used in other studies can be useful for model representation for Turkey's electricity consumption. The chosen models provide a very small absolute difference with actual electricity consumption demand. Recently, government has been focusing in industrial development in non - hydrocarbon sectors. So, the study of electricity production and consumption in these two sectors is considered as significant. An understanding of relationship between electricity consumption and various socio - economic variables is expected to help the planners to make appropriate generation and transmission planning in the country.