A co-integration analysis of the price and income elasticities of energy demand in Turkish agriculture

Agriculture has an important role in every country′s development. Particularly, the contribution of agriculture to development and competitiveness is increasing with agricultural productivity growth. Productivity, in turn, is closely associated with direct and indirect use of energy as an input. Therefore, the importance of energy in agriculture cannot be denied as one of the basic inputs to the economic growth process. Following the importance of energy in Turkish agriculture, this study aims to estimate the long- and short-run relationship of energy consumption, agricultural GDP, and energy prices via co-integration and error correction (ECM) analysis. Annual data from 1970 to 2008 for diesel and electricity consumptions are utilized to estimate long-run and short-run elasticities. According to ECM analysis, for the diesel demand model, the long-run income and price elasticities were calculated as 1.47 and −0.38, respectively. For the electricity demand model, income and price elasticities were calculated at 0.19 and −0.72, respectively, in the long run. Briefly, in Turkey, support for energy use in agriculture should be continued in order to ensure sustainability in agriculture, increase competitiveness in international markets, and balance farmers′ income.

Research highlights
► We estimate the long and short run elasticities for diesel and electricity demands in agriculture.
► The long-run income and price elasticities calculated as 1.47 and 0.38, respectively for diesel.
► The long run Income and price elasticities calculated as 0.19 and 0.72 for electricity.