The Nexus of Electricity Consumption, Financial Development, and Economic Growth in Turkey

Abstract

The study revisits the nexus between electricity consumption and economic growth in Turkey, integrating financial development, capital, and labor as pivotal factors within an augmented production function framework spanning from 1971 to 2019. Employing the ARDL bounds testing approach, the research identifies long-run relationships among electricity consumption, economic growth, financial development, capital, and labor. Key findings indicate robust positive effects of electricity consumption, financial development, capital accumulation, and labor inputs on economic growth in Turkey. These results underscore the multifaceted contributions of energy infrastructure, financial sector development, and productive inputs to overall economic performance over the long term. The positive impact of electricity consumption on economic growth highlights the critical role of energy supply in driving economic activities, supporting industrial production, and enhancing overall productivity. As electricity consumption increases, it facilitates higher levels of output across various sectors, contributing to sustained economic expansion and development. Moreover, the study underscores the significance of financial development in bolstering economic growth. A well-developed financial sector facilitates efficient allocation of capital, encourages investment in productive activities, and fosters innovation and technological advancement—all crucial factors for enhancing economic performance and resilience. Additionally, capital accumulation and labor inputs emerge as significant determinants of economic growth in Turkey. Increased investment in physical capital, such as infrastructure and machinery, enhances productive capacity and efficiency, while a skilled and productive labor force further amplifies output and economic potential. The policy implications drawn from these findings are profound. To sustain economic growth momentum, Turkey should prioritize comprehensive energy policies aimed at enhancing electricity generation capacity, improving energy efficiency, and promoting renewable energy sources. Simultaneously, efforts to strengthen the financial sector through regulatory reforms, institutional capacity building, and financial inclusion initiatives can facilitate greater access to capital and investment opportunities, thereby fostering economic dynamism and resilience.