Determinants of electricity demand in Jordan

Abstract

Electricity is the most known form of energy that is related to production and crucial determinant of economic growth. This paper aims at identifying the determinants of electricity demand in Jordan. To achieve that goal the study employs an economic model that includes the following explanatory variables: Real GDP growth rate, population growth, the domestic energy price index and improvement in production efficiency in the manufacturing sector. This approach will be carried out using the Auto Regressive Distribution Lags (ARDL) model in order to find the determinants of electricity demand in Jordan. The findings of the study came to be consistent with the economic theory by showing that the demand for electricity grows directly and significantly with the growth of the real GDP and population. Means as the population of the country grows at rapid rates, policy makers should be prepared to make the necessary actions to face larger electricity demand in the future. Interestingly, the results show that a higher level of domestic inflation gives incentives to people to save on the electricity consumption. Finally, as expected, the results show that with an improvement in the performance of the manufacturing sector, demand on electricity goes down. Based on these results, the government should facilitate all procedures for economic units to adapt advanced means of production and consumption of energy to meet the increasing electricity demand.