Examining the sectoral energy use in Turkish economy (1980–2000) with the help of decomposition analysis

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Abstract

This paper aims to investigate the sectoral energy use in the Turkish economy for the 1980–2000 period when significant changes occurred in the economic and demographic structure of the country. These changes had several impacts on the energy use in the primary sectors such as agriculture, industry and services. Decomposition analysis is conducted on these sectors by using the additive version of the LMDI method due to its advantages over others. Although a close relationship exists between primary energy consumption and GDP, analyses show that significant variations occurred in the sectoral energy use during the 1982, 1988–1989, 1994 and 1998–2000 periods. Such variations are related to the economic policies of the governments. The Turkish economy has undergone a transformation from agricultural to industrial enhanced by rapid urbanization, especially after 1982. However, industrialization has not been completed yet, and the energy demand should be increasing faster than national income until the energy intensity of the country reaches a peak. This study is performed on three basic sectors; however, decomposition into secondary and tertiary sectors will provide detailed information for further investigations.

Introduction

The structure of the Turkish economy, which is endowed with several resources ranging from geographical to demographic, to cultural and to historical, is that of a rapidly industrializing country [1]. The services sector is one of the major contributors to the national income, followed by industry. These two major sectors contributed almost 87% to Turkey’s national income, while the share of agriculture has declined to about 13% in 2000.

The country has experienced three stages of development since 1950: (1) the liberalized foreign trade regime in the 1950s, (2) the import-substitution industrialization in the 1960s and 1970s and (3) the export-oriented industrialization since 1980 [2]. The year 1980 has become a turning point in the philosophy of the Turkish economy, which had been struggling with severe problems caused by the import-substitution industrialization policies coupled with the extensive state intervention of the previous decades [3]. The economic strategy of the 1980s, therefore, aimed at decreasing the scale of the public sector and the degree of state intervention in market operations [3], [4], [5], [6].

Although several countries have undergone a similar type of transformation as a part of the restructuring of the world economy during the 1980s, Turkey became one of the pioneer countries that practiced structural transformation effectively [4], [6]. However, the present relationship between economy, demography and energy of the country shows that the transformation processes have not yet been completed.

According to IEA (International Energy Agency) data, the GDP of Turkey was 61.655 billion US$ in 1971, 86.999 billion US$ in 1980, 144.565 billion US$ in 1990 and 205.074 billion US$ in 2000, and world’s total GDP was 14366.269 billion US$ in 1971, 20053.987 billion US$ in 1980, 26400.942 billion US$ in 1990 and 34037.023 billion US$ in 2000 at 1995 prices and exchange rates. The shares of the Turkish gross domestic product (GDP) and population in the world’s totals in 2000 are, respectively, 1.01% and 1.11%, while the share of total primary energy consumption (TPEC) is only 0.77% for the same year. These shares increased during the 1971–2000 period from 0.78% to 1.01% in GDP, from 0.36% to 0.77% in TPEC and from 0.98% to 1.11% in population. This means that the rate of increase has been much higher in energy consumption (296.12%) than in income (232.33%) and in population (82.84%) during the same period. On the per capita basis, the GDP increased from 1687 US$ in 1971 to 3068 US$ in 2000 at 1995 prices and exchange rates.2 These figures are given as 3462 US$ for 1971 and 6293 US$ for 2000 at 1995 prices adjusted for PPP (purchasing power parity) by the IEA. On the other hand, the TPEC increased from 532 koe (kilogram-of-oil-equivalent) in 1971 to 1154 koe in 2000.

Since the GDP and TPEC in Turkey are still below the world’s average, efficient use of energy is suggested to be promoted for the economical and social development of the country [7], [8]. In fact, Turkey, as a medium consumer, is among the emerging markets, with a primary energy demand growing more rapidly than most of the other similar countries [9]. The rate of increase in energy demand has always been high, varying from a minimum of −5.73% in 1979 to a maximum of 11.59% in 1972, with an average of 5.12% from 1951 to 1999 [10]. The rate of increase in electricity demand has been even higher than this with an average of 9.52% from 1970 to 1999. With such growth rates, Turkey is expected to play a significant role in the world’s energy sector at least for the first two decades of the 21st century [9].

However, dependency on fossil fuels from foreign sources stands as a significant barrier in front of the sustainable development of the country. Turkey consumed 81.2 million toe (tons-of-oil-equivalent) of primary energy of which only 26.8 million toe has been produced from indigenous resources, consisting of about 33% of the total in 2000.3 The remaining 67% of Turkey’s energy consumption is met by imports, and the import’s share is expected to increase rapidly in the future [10], [11]. Fossil fuels have the biggest share in overall consumption, reaching almost 87% of which 57% is hydrocarbon (40% oil and 17% natural gas) and 30% is coal (18% lignite, including very small amounts of asphaltite, secondary coal and petro-coke and 12% bituminous coal) in 2000.

The supply security problem of the Turkish energy system can only be solved by policy implications designed by scientific studies specifically on the sectoral use of energy in the Turkish economy. However, this subject has been examined poorly in the previous studies (e.g. [12], [13], [14], [15]). The purpose of this study is, therefore, to examine the sectoral energy use in the Turkish economy during 1980–2000 with the help of decomposition analysis. Decomposition analysis is performed on three primary sectors; agriculture, industry and services by using the additive version of the LMDI (Logarithmic Mean Divisia Index) method [16].

Since this is the first study on the subject, only the basic sectors are considered. A special emphasis is given to the agriculture and livestock production sub-sector of the agriculture sector and to the manufacturing sub-sector of the industrial sector. One of the major reasons for this is that the Turkish policy makers have traditionally considered them as the two driving sectors essential for development. However, in practice, these sectors found themselves in a severe competition because one of them is usually neglected while the other is supported [17], [18]. Another reason is that the services sector is like a “wastebasket”, which includes dissimilar activities such as wholesale and retail trade, hotels and restaurants services, transportation and communication, financial institutions, ownership of dwelling, business and personal services, imputed bank service charge, government services, private non-profit institutions and import duties (see also [19]).

The reason to use the LMDI additive method is that this method not only yields perfect decomposition with no residual term but also can accommodate the value zero in the data set [16], [20], [21]. Additionally, for three of the decomposed sectors, availability of the annual time series data within the study period enabled the decomposition of each successive year. By this way, we have the advantage of evaluating all information in the data set for explaining the pattern of changes in the production, structural and intensity effects.

Unless otherwise indicated, the data used in this study is obtained from the Ministry of Natural Resources and Energy, State Statistics Institute and the Undersecretariat of Treasury of Turkey. GDP is given in TL (Turkish Lira) at 1987 producers’ prices, and TPEC is given in toe (tons-of-oil-equivalent).

Section snippets

Energy/economy relationship

A close relationship exists between primary energy consumption (E) and total GDP (Y) of Turkey during 1980–2000 (Table 1). This relationship is almost linear, which is defined by the formula of E = 707.7  Y  5530.1 with R2 = 0.98.

The historical development of energy consumption and economic production demonstrates frequent fluctuations, evolving in a cyclic pattern (Fig. 1). Two of the four complete increasing cycles, which were previously described by the senior author of this paper in the time

Decomposition analysis

Aggregate decomposition analysis assumes that the change in total primary energy consumption from year 0 to year t, also called the total effect (ΔEtot), is formed with the contributions of the production effect (ΔEpdn), structural effect (ΔEstr), intensity effect (ΔEint) and residual (ΔErsd) effect, which is always 0 in this study:ΔEtot=ΔEpdn+ΔEstr+ΔEint+ΔErsdThe three effects in Eq. (1) are calculated for each sector i (agriculture, industry, and services) by using the LMDI method described

Policy implications

The results of the decomposition analyses confirm the economic programs of the governments, which are traditionally separated into three periods as 1980–1983, 1983–1987 and 1988 onwards. The Stabilization Program, also called the “24 January Decisions”, which was announced during the beginning of the 1980–1983 period, included a series of economic policy changes aimed at stabilization, liberalization and integration into the world’s markets [2], [3], [4], [22], [23]. During the 1983–1987

Conclusions and recommendations

This study shows that the sectoral energy use in Turkey from 1980 to 2000 has undergone significant changes owing to the transformation from an agricultural to an industrial economy enhanced by rapid urbanization between 1983 and 1987. However, the country is still in its early stage of development and energy demand should be increasing faster than national income until the energy intensity of the country reaches a peak [33].

The most recent studies examining the relationship between energy

Acknowledgements

The authors would like to thank Prof. Beng Wah Ang, Head, Department of Industrial and Systems Engineering, National University of Singapore, for helping in decomposition analysis, for providing relevant papers and for suggesting some comments to improve the quality of the manuscript. Thanks are also due Mr. Sedat Çal, Turkish Treasury, for critically reviewing the manuscript and for offering valuable suggestions. Mr. Serdar Şahinkaya, Turkish Development Bank, provided data as well as copies

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