A b s t r a c t : The demand for electricity in Sri Lanlca depends mainly on the activities ol'clomestic, industrial and comnlercial sectors ancl t h e t h r e e conlponents a r e highly correlatecl. Although such correlation does n o t affect u n i v a r i a t e e s t i m a t i o n procedures, it may lead to incorrect inferences of influerltial factors on the demand for electricity. As a r e s u l t , s e p a r a t e u n i v a r i a t e a p p r o a c l~e s for each sector m a y not bc a n a c c u r ;~t e niethocl of' identifying s u c h factors. Therefore, this stucly alms to identify sucll facto1.s using multivariate regression whicb consjders the correlation among different sectors (or dependent variables) ancl estimates il multivariate demand model for the purpose offorecasting. The overall sign iricance of t h e fitted demand model a n d t h e significant influential factors a r e assessed by m u l t i v a r i a t e t e s t s s u c h a s B a r t l e t t ' s u s i n g t h e s t a t i s t i c a l package SAS. Theoretically, d e m a n d i s a function of i t s own price, t h e income level ,or consumers, and the price of substitutes. Gross Domestic Product (GDP) a t constant (1960) factor prices is used as a proxy for income level of consumers a n d kerosene i s tillten a s a close substitute Ibl. elcctriclty. The analysis uses quarterly data Tot two periocls 1970-1977 ant1 1978-1994 to a s s e s s t h e effect of t h e liberalized economy int~~ocluccd in late 1977. During the period aftcr 1977, the effect ol'thc income levcl h a s i~lcreasecl s u b s t a~l t i a l l y clue to t h e liberalized economy. T h e substitution between electricity and lierosene i s marginal ill the post-lil)ol~alizecl periocl, a s electricity is more efficient antl-convenient t l~a n Iterosene. Jlue to , such dit'ferenccs between t h e two pcriohs. t h e de~nancl for electricity lni>y be explained better by tnto models rather than a single lnoclel estimated for t l~e entire period. The multivariate demand model based on the post-li.beralized period is fbuncl to aclequately forecast the clemand for electricity.
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