Natural Gas Consumption and Economic Growth in Pakistan

Muhammad, Shahbaz and Lean, Hooi Hooi and Abdul, Farooq (2012): Natural Gas Consumption and Economic Growth in Pakistan.

Abstract

Natural gas is a dominant fuel in Pakistan. It offers the cheapest and a cleaner alternative source of energy. This paper examines the relationship of natural gas consumption and economic growth in Pakistan. We include capital, labor and exports in the model with multivariate framework. The ARDL bounds testing approach to cointegration and innovative accounting approach are employed to investigate the dynamic causality relationships among the variables. We find the existence of long-run relationship among the variables. Natural gas consumption, real capital, labor and real exports are positively affecting the economic growth in Pakistan. Furthermore, we support the natural gas consumption-led-growth hypothesis and suggest that the natural gas conservation policies may retard the rate of economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Gas Consumption, Economic Growth
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy

References

[1]. Apergis N, Payne JE. Natural gas consumption and economic growth: A panel investigation of 67 countries. Applied Energy 2010; 87: 2759-2763.

[2]. Pakistan Energy Year book (2005). Hydrocarbon Development Institute of Pakistan, Pakistan.

[3]. GoP, (2008-09). Economic Survey of Pakistan, Published by Ministry of Finance, Islamabad, Pakistan.

[4]. EIA, (2010). International Energy Outlook 2010, Energy International Administration, Washington DC.

[5]. Aqeel A, Butt MS. The relationship between energy consumption and economic growth in Pakistan. Asia–Pacific Development Journal 2001; 8: 101-110.

[6]. Siddiqui R. Energy and economic growth in Pakistan. The Pakistan Development Review 2004; 43: 175-200.

[7]. Zahid A. Energy–GDP relationship: A causal analysis for the five countries of South Asia. Applied Econometrics and International Development 2008; 1: 167-180.

[8]. Khan AA, Ahmed U. Energy demand in Pakistan: A disaggregate analysis. The Pakistan Development Review 2009; 4: 1-27.

[9]. Lutkepohl H. Non-causality due to omitted variables. Journal of Econometrics 1982; 19: 367-378.

[10]. Loizides J, Vamvoukas G. Government expenditure and economic growth: Evidence from trivariate causality testing. Journal of Applied Economics 2005; 0: 125-152.

[11]. Grossman GM, Helpman E. Comparative Advantage and Long-run Growth. American Economic Review 1990; 80: 796-815.

[12]. Rivera-Batiz L A, Romer PM. International trade with endogenous technological change. European Economic Review 1991; 35: 971-1001.

[13]. Chandran VGR, Sharma S, Madhavan K. Electricity consumption–growth nexus: The case of Malaysia. Energy Policy 2009; 38: 606-612.

[14]. Yu ESH, Choi JY. The causal relationship between energy and GNP: an international comparison. Journal of Energy and Development 1985; 10: 249-272.

[15]. Yang HY. A note on the causal relationship between energy and GDP in Taiwan. Energy Economics 2000b; 22: 309-317.

[16]. Fatai K, Oxley L, Scrimgeour FG. Modeling the causal relationship between energy consumption and GDP in New Zealand, Australia, India, Indonesia, the Philippines, and Thailand. Mathematics and Computers in Simulation 2004; 64: 431-445.

[17]. Lee CC, Chang CP. Structural breaks, energy consumption and economic growth revisited: evidence from Taiwan. Energy Economics 2005; 27: 857-872.

[18]. Ewing BT, Sari R, Soytas U. Disaggregate energy consumption and industrial output in the United States. Energy Policy 2007; 35: 1274-1281.

[19]. Zamani M. Energy consumption and economic activities in Iran. Energy Economics 2007; 29: 1135-1140.

[20]. Amadeh H, Morteza G. Abbasifar Z. Causality relation between energy consumption and economic growth and employment in Iranian economy. Tahgighat-E-Eghtesadi 2009; 44: 1-38.

[21]. Hu JL, Lin CH. Disaggregated energy consumption and GDP in Taiwan: a threshold cointegration analysis. Energy Economics 2008; 30: 2342-2358.

[22]. Sari R, Ewing BT, Soytas U. The relationship between disaggregate energy consumption and industrial production in the United States: an ARDL approach. Energy Economics 2008; 30: 2302-2313.

[23]. Reynolds DB, Kolodziej M. Former Soviet Union oil production and GDP decline: granger-causality and the multi-cycle Hubbert curve. Energy Economics 2008; 30: 271-289.

[24]. Adeniran O. Does energy consumption cause economic growth? an empirical evidence from Nigeria. University of Dundee 2009.

[25]. Clement IAU, Cointegration and causality relationship between energy consumption and economic growth: Further empirical evidence for Nigeria. Journal of Business Economics and Management 2010; 15: 97-111.

[26]. Kum H, Ocal O, Aslan A, The relationship among natural gas energy consumption, capital and economic growth: Bootstrap-corrected causality tests from G-7 countries 2012; 16: 2361-2365.

[27]. Odhiambo NM. Financial depth, savings and economic growth in Kenya: A dynamic causal linkage. Economic Modeling 2008; 25: 704-713.

[28]. Hsiao C. Autoregressive modeling and money income causality detection. Journal of Monetary Economics 1981; 7: 85-106.

[29]. Hansen BE, Seo B. Testing for two-regime threshold cointegration in vector error-correction models. Journal of Econometrics 2002; 110: 293-318.

[30]. Sims CA. Macroeconomics and reality. Econometrica 1980; 48: pp.1-48.

[31]. Pedroni P. Critical values for cointegration tests in heterogenous panels with multiple regressors. Oxford Bulletin of Economics and Statistics 1999; 653-670.

[32]. Pedroni P. Fully modified OLS for heterogeneous cointegrated panels. Advances in Econometrics 2000; 15: 93-130.

[33]. Toda HY, Yamamoto T. Statistical inferences in vector autoregressions with possibly integrated processes. Journal of Econometrics 1995; 66: 225-250.

[34]. Stern DI. A multivariate cointegration analysis of the role of energy in the U.S. macroeconomy. Energy Economics 2000; 22: 267-283.

[35]. Ghali KH, El-Sakka MIT. Energy consumption and output growth in Canada: a multivariate cointegration analysis. Energy Economics 2004; 26: 225-238.

[36]. Beaudreau B. Engineering and economic growth. Energy Economics 2005; 16: 211-220.

[37]. Sari R, Soytas U. The growth of income and energy consumption in six developing countries. Energy Policy 2007; 35: 889-898.

[38]. Yuan JH, Kang JG, Zhao CH, Hu ZG. Energy consumption and economic growth: evidence from China at both aggregated and disaggregated levels. Energy Economics 2008; 30: 3077-3094.

[39]. Wolde-Rufael Y. Bounds test approach to cointegration and causality between nuclear energy consumption and economic growth in India. Energy Policy 2010; 38: 52-58.

[40]. Shahbaz M, Lean HH. The dynamics of electricity consumption and economic growth: A revisit study of their causality in Pakistan. Energy 2012b; 39: 146-153.

[41]. Pesaran MH, Shin Y, Smith RJ. Bounds testing approaches to the analysis of long run relationships. Journal of Applied Econometrics 2001; 16: 289-326.

[42]. Inder B. Estimating long-run relationships in economics: A comparison of different approaches. Journal of Econometrics 1993; 57: 53-68.

[43]. Pesaran MH, Shin Y. (1999). An autoregressive distributed lag modeling approach to cointegration analysis. Chapter 11 in Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, Strom S (ed.). Cambridge University Press: Cambridge.

[44]. Wolde-Rufael Y. The defence spending-external debt nexus in Ethiopia. Defence and Peace Economics 2009; 20: 423-436.

[45]. Enders W. Applied Econometric Time Series 1995, Wiley: New York.

[46]. Shan J. Does financial development ‘lead’ economic growth? A vector autoregression approach. Applied Economics 2005; 37: 1353-1367.

[47]. Lütkepohl H. Structural vector autoregressive analysis for cointegrated variables, AStA Advances in Statistical Analysis 2006; 90: 75-88.

[48]. Narayan PK. The saving and investment nexus for China: evidence from cointegration tests. Applied Economics 2005; 37: 1979-1990.

[49]. Johansen S, Juselies K. Maximum likelihood estimation and inferences on cointegration. Oxford Bulletin of Economics and Statistics 1990; 52: 169-210.

[50]. Işik C. Natural gas consumption and economic growth in Turkey: a bound test approach. Energy Systems 2010; 1: 441-456.

[51]. Arby MF, Batool I. Estimating quarterly gross fixed capital formation. SBP working papers series 2007, no.17. State Bank of Pakistan.

[52]. Saten K, Shahbaz M. Coal consumption and economic growth revisited: structural breaks, cointegration and causality tests for Pakistan. Energy Exploration and Exploitation 2012; 30: 499-522.

[53]. Shahbaz M, Dube S. Revisiting the Relationship between Coal Consumption and Economic Growth: Cointegration and Causality Analysis in Pakistan. Applied Econometrics and International Development 2012; 12(1).