The Relationship Between Index of Sustainable Economic Welfare and Renewable Energy Production in Turkey: Findings From the RALS-EG Test

The Relationship Between Index of Sustainable Economic Welfare and Renewable Energy Production in Turkey: Findings From the RALS-EG Test

Muhammet Fatih Coşkun, Gökhan Konat
Copyright: © 2023 |Pages: 14
DOI: 10.4018/978-1-6684-6727-5.ch001
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Abstract

ISEW (Index of Sustainable Economic Welfare), one of the important indicators of sustainable development, is an important tool that should be measured regularly and its relationship with other macroeconomic indicators should be closely monitored. In this context, the current calculation of ISEW in the Turkish economy and the analysis of its relations with renewable energy generation constitutes the purpose of this study. As a result of the econometric tests, it is found that there is a long-term relationship between the two variables considered according to the RALS-EG cointegration test. The long-term coefficient estimation of the co-integrated variables has been estimated by the dynamic OLS (DOLS) method, and it is seen that renewable energy production has a negative effect on sustainable development. This result differs from the majority of studies on developed countries. Theory and literature say that renewable energy will support sustainable development.
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1. Introduction

After the Great Depression of 1929, different indices and methods were used to monitor macroeconomic trends closely. Before the Great Depression, the economics literature was largely shaped on the microeconomic base, but after this important event, the focus shifted to macroeconomics. Subsequently, important indicators such as gross domestic product (GDP) was calculated (Menegaki A., 2018, s. 1). However, GDP has some important shortcomings (Daly & Posner, 2012, s. 5).

Gross Domestic Product (GDP) is a widely-used indicator of a country's economic performance. However, it has several limitations in terms of measuring overall societal welfare. Firstly, it does not consider income inequality, which means that even if the GDP increases, the benefits may not be distributed equally. Secondly, GDP only represents the quantity of goods and services produced, without revealing their quality. Thirdly, defense expenditure is not taken into account, which can have a significant impact on a country's economic performance. Fourthly, GDP does not distinguish between value rises brought on by speculation and borrowing and growth in true economic value. Fifthly, natural resource degradation is not factored in, and the costs associated with it are not reflected in the GDP. Sixthly, goods and services that are not bought and sold in the market, such as housework, are not included in the GDP. Lastly, GDP offers limited information on social welfare, as it does not reflect the unemployment, poverty, and human development index indicators. Therefore, it is essential to complement the GDP with other indicators that provide a more comprehensive picture of a country's overall welfare.

These shortcomings of the GDP have been tried to be overcome by calculating new and other indices over time. However, these indices are mostly calculated as substitutes for GDP (Menegaki A., 2018, s. 2). ISEW (Index of Sustainable Economic Welfare) was developed not as a substitute for GDP, but as a new version of it with social welfare indices (Menegaki, 2018, 2). In this respect, this index, which is one of the important indicators of sustainable development, should be measured regularly and its relationship with other macroeconomic indicators should be closely monitored.

Figure 1.

Types of index of sustainable economic welfare

978-1-6684-6727-5.ch001.f01
Source: Menegaki A. (2018, s. 8)

ISEW is calculated with three kinds of data (Menegaki A., 2018, s. 7-10). The first type of data is economic indicators and this dataset forms the Basic ISEW. Undoubtedly, sustainable welfare consists primarily of these activities. Data such as individual consumption expenditures, health expenditures, education expenditures and fixed capital formation are classified in this category. The second type of data consists of environmental data. Mineral depletion, energy depletion, carbon damage and particulate emission are some indicators that fall into this category. The sum of these forms the Solid ISEW. Finally, social data forms the Site-specific ISEW. Indicators falling into this category are mostly composed of willingness to pay index. However, it is difficult to measure and therefore not included in the calculation.

The continuation of the study consists of the related literature, obtaining the data set, econometric analysis and evaluation of the results, respectively.

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There is no single form of ISEW calculation. The researchers made different ISEW calculations according to the countries and time intervals, taking into account the availability of the data (Neumayer, 1999, s. 5). In addition, due to the lack of data, it is very difficult to obtain the Site-specific ISEW calculation, which is calculated by adding social variables on top of the Basic and Solid ISEW, and the Full ISEW, which is the sum of all ISEW varieties, and there are very few studies in the literature in which this calculation is made (Menegaki A., 2018, s. 1). In the light of this information, the relevant literature can be summarized as follows:

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