Energy Demand in Pakistan: A Disaggregate Analysis

Khan, Muhammad Arshad and Ahmed, Usman (2009): Energy Demand in Pakistan: A Disaggregate Analysis. Forthcoming in: Pakistan Development Review , Vol. 4, (2009)

Abstract

This study examines the demand for energy at disaggregate level (gas, electricity and coal) for Pakistan over the period 1972-2007. Over main results suggest that electricity and coal consumption responds positively to changes in real income per capita and negatively to changes in domestic price level. The gas consumption responds negatively to real income and price changes in the shortrun, however, in the long-run real income exerts positive effect on gas consumption, while domestic price remains insignificant. Furthermore, in the short-run the average elasticities of price and real income for gas consumption (in absolute terms) are greater than that of electricity and coal consumption. The differences in elasticities of each component of energy have significant policy implications for income and revenue generation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Energy Demand, Cointegration, Pakistan
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply ; Prices; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Ahn, S. K. and G. C. Reinsel (1988), “Nested Reduced Rank Autoregressive Models for Multiple Time Series”, Journal of American Statistical Association, Vol. 83, pp. 849-856.

Akarca, A. T., and T.V. Long (1980), “On the Relationship between Energy and GNP: A Reexamination”, Journal of Energy Development, Vol. 5, pp. 326-331.

Akinlo, A. E. (2008), “Energy Consumption and Economic Growth: Evidence from 11 Sub-Sahara African Countries”, Energy Economics, Vol. 30, pp. 2391-2400.

Al-Faris, A. R. (2002), “The Demand for Electricity in the GCC Countries”, Energy Policy”, Vol. 30, pp. 117-124.

Altinay, G. and E. Karagol (2004), “Structural Break, Unit Root, and the Causality between Energy Consumption and GNP in Turkey”, Energy Economics, Vol. 26, pp. 985-994.

Aqeel, A and M.S. Butt (2001), “The Relationship between Energy Consumption and Economic Growth in Pakistan”, Asia-Pacific Development Journal, Vol. 8, No. 2, pp. 101-109

Asafu-Adjaye, J. (2000), “The Relationship between Energy Consumption, Energy Prices and Economic Growth: Time Series Evidence from Asian Developing Countries”, Energy Economics, Vol. 22, pp. 615-625.

Beenstock, M., E. Goldin, and D. Nabot (1999), “The Demand for Electricity in Isreal”, Energy Economics, Vol. 21, pp. 168-183.

Bentzen, J. and T. Engsted (1993), “Short- and Long-run Electicities in Energy Demand: A Cointegration Approach”, Energy Economics, Vol. 15, No. 15, pp. 9-16.

Cheng, B.S. (1995), “An Investigation of Cointegration and Causality between Energy Consumption and Economic Growth”, Journal of Energy and Development, Vol. 21, pp. 73-84.

Cheung, Y. W. and K. S. Lai (1993), “Finite Sample Size of the Johansen’s Likelihood Ratio Tests for Cointegration”, Oxford Bulletin of Economics and Statistics, Vol. 55, pp. 313-328.

Clements, M.P., and R. Madlener (1999), “Seasonality, Cointegration, and Forecasting UK Residential Energy Demand”, Scottish Journal of Political Economy, Vol. 46, No. 2, pp.185-206.

De Vita, G., K. Endresen and L. C. Hunt (2006), “An Empirical Analysis of Energy Demand in Namibia”, Energy Policy, Vol. 34, pp. 3447-3463.

Dergiades, T. and L. Tsoulfidis (2008), “Estimating Residential Demand for Electricity in the United States, 1965-2006”, Energy Policy, Vol. 30, pp. 2722-2730.

Erol, U. and E. H. S. Yu (1987), “On the Causal Relationship between Energy and Income for Industrialized Countries”, Journal of Energy and Development, Vol. 13, pp. 113-122.

Engle, R.F, and C.W.J. Granger (1987), “Cointegration and Error-Correction: Representation, Estimation, and Testing”, Econometrica, Vol. 55, pp. 251-276.

Erbaykal, E. (2008), “Disaggregate Energy Consumption and Economic Growth: Evodence from Turkey”, International Research Journal of Finance and Economics, Issue, 20, pp. 172-179.

Erol, U. and E. H. S. Yu (1987), “On the Causal Relationship between Energy and Income for Industrialized Countries”, Journal of Energy and Development, Vol. 13, pp. 113-122.

Fatai, K., Oxley and F.G. Scrimgeour (2004), “Modelling the Causal Relationship between Energy Consumption and GDP in New Zealand, Australia, India, Indonesia, The Philippines and Thailand”, Mathematics and Computer Simulation, Vol. 64, pp. 431-445.

Galindo, L. M. (2005), “Short- and Long-run Demand for Energy in Mexico: A Cointegration Approach”, Energy Policy, Vol. 33, pp. 1179-1185.

Ghali, K. H. and M. I. T. El-Sakka (2004), “Energy Use and Output Growth in Canada: A Multivariate Cointegration Analysis”, Energy Economics, Vol. 26, pp. 225-238.

Ghosh, S. (2002), “Electricity Consumption and Economic Growth in India”, Energy Policy, Vol. 30, pp. 125-129

Haq, N-Ul (2008), “Energy Crisis in Pakistan” in N-Ul Haq and K. Hussain (eds.) available from Hondroyiannis, G., S. Lolos and E. Papapetrou (2002), “Energy Consumption and Economic Growth: Assessing the Evidence from Greece”, Energy Economics, Vol. 24, pp. 319-336.

Howard, R. B., L. Schipper and B. Anderson (1993), “The Structure and Trends and Intensity of Energy Use: Trends in Five OECD Nations”, The Energy Journal, Vol. 14, pp. 27-44.

Hwang, D. B. K. and B. Gum (1992), “The Causal Relationship between Energy Consumption and GNP: The Case of Taiwan”, The Journal of Energy and Development, Vol. 16, pp. 219-226.

Iqbal, M. (1983), “Residential Demand for Electricity and Natural Gas in Pakistan”, The Pakistan Development Review, Vol. 22, No. 1, pp. 23-36.

International Energy Agency (IEA) Statistics Oil Information 2005.

Johansen, S. (1988), “Statistical Analysis of Cointegrating Vectors”, Journal of Economic Dynamics and Control, Vo. 12, pp. 231-254.

Johansen, S. and K. Juselius (1990), “Maximum Likelihood Estimation and Inference on Cointegration-With Application to Demand for Money”, Oxford Bulletin of Economic and Statistics, Vol. 52, pp. 169-210.

Jorgenson, D. W. and P. J. Wilcoxen (1993), “Energy, the Environment and Economic Growth”, In A. Kneese and J. Sweeney (eds.) Handbook of Natural Resources and Energy Economics, Vol. III, Elsevier NL, Amsterdam, The Netherlands, pp. 1267-1349.

Jumbe, C.B.L. (2004), “Cointegration and Causality between Electricity Consumption and GDP: Empirical Evidence from Malawi”, Energy Economics, Vol. 26, pp. 61-68.

Kraft, J and A. Kraft (1978), “Note and Comments: On the Relationship between Energy and GNP”, The Journal of Energy and Development, Vol. 3, pp. 402-403.

Lee, C. C. (2005), Energy Consumption and GDP in Developing Countries: A Cointegrated Panel Analysis”, Energy Economics, Vol. 27, pp. 415-427.

Lee, C. C. (2006), “The Causality Relationship between Energy Consumption and GDP in G-11 Countries Revisited”, Energy Policy, Vol. 34, pp. 1086-1093.

Looney, R. (2007), “Sustaining Economic Expansion in Pakistan in the Era of Energy Shortfalls: Growth Options to 2035”, OPEC Review, Vol. 31, No. 2, pp. 125-157.

Masih, A.M.M., and R. Masih (1996), “Energy Consumption, real Income, and Temporal Causality: Results from and Multi-Country Study Based on Cointegration and Error-Correction Modelling Techniques”, Energy Economics, Vol. 18, pp. 165-183.

Mohammad, Y. H. and M. N. Eltony (1996), “The Demand for Natural Gas in the Gulf Cooperation Council (GCC) States”, The Middle East Business ands Economic Review, Vol. 8, pp. 41-48.

National Bank of Pakistan (2008), “Pakistan’s Energy Sector”, Economic Bulletin, January-February, 2008, pp. 4-15.

Narayan, P. K. and R. Smith (2005), “The Residential Demand for Electricity in Australia: An Application of the Bounds Testing Approach to Cointegration”, Energy Policy, Vol. 33, pp. 467-474.

Ozun, A. and A. Cifter (2007), “Multi-scale Causality Between Energy Consumption and GNP in Emerging Markets: Evidence From Turkey”, Investment Management and Financial Innovations, Vol. 4, No. 2, pp. 61-70.

Pakistan, Government of (Various Issues) Pakistan Energy Year Book: Islamabad.

Pakistan Government of (2006-07) Pakistan Economic Survey: Islamabad.

Pakistan, Government of (Various Issues) Pakistan Economic Survey: Islamabad.

Paul, S. and R.N. Bhattacharya (2004), “Causality between Energy Consumption and Economic Growth in India: A Note on Conflict Results”, Energy Economics, vol. 26, pp. 977-983.

Reimers, H. E. (1991), “Comparisons of Tests for Multivariate Cointegration”, Working Paper No. 58, Institute of Statistics and Econometrics, University of Kiel.

Rufael, Y. W. (2006), “Electricity Consumption and Economic Growth: A Time Series Experience of 17 African Countries”, Energy Policy, Vol. 34, pp. 1106-1114

Sahir, M. H. and A. H. Qureshi (2007), “Specific Concerns of Pakistan in the Context of Energy Security Issues and Geopolitics of the Region”, Energy Policy, Vol. 35, pp. 2031-2037.

Sari, R., B. T. Ewing and U. Soytas (2008), “The Relationship Between Disaggregate Energy Consumption and Industrial Production in the United States: An ARDL Approach”, Energy Economics, Vol. 30, pp. 2302-2313.

Siddiqui, R. (2004), “Energy and Economic Growth in Pakistan”, The Pakistan Development Review, Vol. 43, No. 2, pp. 175-200.

Siddiqui, R. and R. Haq (1999), “Demand for Energy and the Revenue Impact of Changes in Energy Prices”, Research Report No. 174, Pakistan Institute of Development Economics, Islamabad.

Silk, JU. I. and F. L. Joutz (1997), “Short and Long-run Elasticities in US Residential Electricity Demand: A Cointegration Approach”, Energy Economics, Vol. 19, pp. 493-513.

Soytas, U. and R. Sari (2006), “Energy Consumption and GDP: Causality Relationship in G-7 Countries and Emerging Markets”, Energy Economics, Vol. 25, pp. 33-37.

Soytas, U. and R. Sari (2003), “Energy Consumption and GDP: Causality Relationship in G-7 Countries and Emerging Markets”, Energy Economics, Vol. 25, pp. 33-37.

Stern, D. I. (1993), “Energy and Economic Growth in the USA, A Multivariate Approach”, Energy Economics, Vol. 15, pp. 137-150.

Stern, D. I. (2000), “A Multivariate Cointegration Analysis of the Role of Energy in the US Economy”, Energy Economics, Vol. 22, pp. 267-283

Stern, D. I. and J. C. Cleveland (2004), “Energy and Economic Growth”, Rensselaer Working Papers in Economics, ss. 1-42

The Institute of Strategic Studies (2007a), “Inaugural Address: Mr. Shaukat Aziz”, Prime Minister Islamic Republic of Pakistan, Printed in “Energy: Sources of Regional Cooperation and Competition”, Conference Proceedings Organized by the Institute of Strategic Studies, Islamabad.

The Institute of Strategic Studies (2007b), “Energy: Sources of Regional Cooperation and Competition”, Conference Proceedings Organized by the Institute of Strategic Studies, Islamabad.

Varian, H. (1988), “Microeconomic Analysis”, Norton, New York.

Wolde-Rufael, Y. (2004), “Disaggregate Energy Consumption and GDP, the Experience of Shangai 1952-1999”, Energy Economics, Vol. 26, pp. 69-75.

Wolde-Rufael, Y. (2005), “Energy Demand and Economic Growth: The African Experience of 19 Countries”, Journal of Policy Modelling, Vol. 27, pp. 891-903.

Yu, E.S.H. and B.K. Hwang (1984), “The Relationship between Energy and GNP: Further Results”, Energy Economics, Vol. 6, pp. 186-190

Yu, E.S.H. and J.Y. Choi (1985), “The Causal Relationship between Energy and GNP: An International Comparison”, Journal of Energy Development, Vol. 10, pp. 249-272.

Yu, E.S.H. and J.C. Jin (1992), “Cointegration Tests of Energy Consumption, Income and Employment”, Resource Energy, Vol. 14, pp. 259-266.

Zaleski, P. (2001), “Energy and Geopolitical Issues”, In Rao, D. B., D. Harshyita (eds.), Energy Security, Discovery Publishing House, New Delhi.

Ziramba, E. (2008), “The Demand for Residential Electricity in South Africa”, Energy Policy, Vol. 36, pp. 3460-3466.