Time Series Analysis of Interdependent Phases of the Electricity Industry in South Korea

Abstract

This study specifies and estimates a model to investigate the relationship between different phases of the electricity industry and market. These include the generation, transmission, distribution and demand segments. Common variables that explain these segments are identified and their effects estimated. Korean time series data from the period 1961 to 2008 are considered for the empirical analysis. In the study, a series of steps is conducted. First, using cointegration and causality tests, the relationships between the variables of interest are established. Second, each phase is specified as a function of its determinants. Third, the phases are then estimated as an interdependent recursive system. By using the predicted values of variables from the previous phases, a possible endogeneity problem is avoided. Fourth, a model for the forecast is specified and estimated, and the future demand predicted. Finally, based on the results, policy guidelines are suggested to improve the market structure of the industry, and measures are proposed to achieve the stated goals of the industry and market.