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Is energy consumption effective to spur economic growth in Pakistan? new evidence from bounds test to level relationships and Granger causality tests

Muhammad, Shahbaz and Muhammad, Zeshan and Talat, Afza (2012): Is energy consumption effective to spur economic growth in Pakistan? new evidence from bounds test to level relationships and Granger causality tests.

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Abstract

The present study investigates the relationship between energy (renewable and nonrenewable) consumption and economic growth using Cobb-Douglas production function in case of Pakistan over the period of 1972-2011. We have used ARDL bounds testing and Gregory and Hansen (1990) structural break cointegration approaches for long run while stationarity properties of the variables are tested applying Clemente-Montanes-Reyes (1998) structural break unit root test.

Our results confirm cointegration between renewable energy consumption, nonrenewable energy consumption, economic growth, capital and labor in case of Pakistan. The findings show that both renewable and nonrenewable energy consumption add to economic growth. Capital and labour are also important determinants of economic growth. The VECM granger causality analysis validates the existence of feedback hypotheses between renewable energy consumption and economic growth, nonrenewable energy consumption and economic growth, economic growth and capital.

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