The Electricity Consumption and Economic Growth Nexus in Pakistan: A New Evidence

Atif, Syed Muhammad and Siddiqi, Muhammad Wasif (2010): The Electricity Consumption and Economic Growth Nexus in Pakistan: A New Evidence.

Abstract

This study examines the Granger causality between electricity consumption and Gross Domestic Product (GDP) for Pakistan using annual data covering the period 1971 to 2007. Augmented Dickey-Fuller test and Phillips-Perron test reveal that both the series, after logarithmic transformation, are non-stationary and individually integrated at order one. Engle and Granger Cointegration test exhibits the absence of long-run relationship among the variables. Two tests of causality, standard Granger Causality test and Modified WALD test (T-Y test) affirm the existence of unidirectional Granger causality from electricity consumption to economic growth without any feedback effect. Therefore, an immediate effort to increase electricity availability is required and energy conservation policies are supposed to halt the economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Electricity Consumption, Economic Growth, Pakistan
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O20 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Akinlo, A. E. (2009). Electricity consumption and economic growth in Nigeria: Evidence from Cointegration and co-feature analysis. Journal of Policy Modeling, 31(5), pp. 681-693.

Altinay, G., and E. Karagol (2005). Electricity consumption and economic growth: Evidence from Turkey. Energy Economics, 27, 849-856.

Aqeel, A., and M.S. Butt (2001). The relationship between energy consumption and economic growth in Pakistan. Asia-Pacific Development Journal, 8, 101-110.

Asafu-Adjaye, J. (2000). The relationship between electricity consumption, electricity prices and economic growth: time series evidence from Asian developing countries. Energy Economics, 22, 615–625.

Asghar, Zahid. (2008). Energy-GDP Relationship: A Causal Analysis for the Five Countries of South Asia. Applied Econometrics and International Development, Vol-8, No. 1.

Cheng, B.S. (1996). Energy consumption and economic growth in Brazil, Mexico and Venezuela: a time series analysis. Applied Economics Letters, 4, 671-674.

Cheng, B.S., and T.W. Lai (1997). An investigation of co-integration and causality between electricity consumption and economic activity in Taiwan. Energy Economics, 19, 435–444.

Engle, R.F., and C. W. J. Granger (1987). Cointegration and error correction: representation, estimation, and testing. Econometrica, 55, 251–276.

Ferguson, R., W. Wilkinson and R. Hill. (2000). Electricity use and economic development. Energy Policy, 28, 923–934.

Ghosh, S. (2000). Electricity consumption and economic growth in India. Energy Policy, 36, 125-129.

Granger C.W.J. (1988). Causality, cointegration and control. Journal of Economic Dynamics and Control, 12, 551-559.

Griffiths, W. E. et al. (1993). Learning and Practicing Econometrics. New York: Wiley.

Gujarati, D.N. (2002). Basic Econometrics (4th Edition). New York: Mcgraw-Hill.

Gupta, G., and N. Sahu (2010), Causality between electricity consumption and economic growth: empirical evidence from India. MPRA Paper No. 22942

Hu, J., and C. Lin (2007). Disaggregated energy consumption and GDP in Taiwan: A threshold cointegration analysis. Energy Economics, 30, 2342-2358.

Kraft, J., & Kraft, A. (1978). On the relationship between energy and GNP. Journal of Energy Development, 3, 401–403.

Lise, W., and K. Montfort (2006). Energy consumption and GDP in Turkey: Is there a cointegration relationship? Energy Economics, 29, 1166-1178.

Masih, A.M.M., and R. Masih (1996). Electricity consumption, real income and temporal causality: results from a multi-country study based on cointegration and error–correction modeling techniques. Energy Economics, 18, 165–183.

Mehrara, M. (2006). Energy consumption and economic growth: The case of oil exporting countries. Energy Policy, 35, 2939-2945.

Mozumder, P., and A. Marathe (2006). Causality relationship between electricity consumption and GDP in Bangladesh. Energy Policy, 35,395-402.

Narayan, P.K., and B. Singh (2006). The electricity consumption and GDP nexus for the Fiji Islands. Energy Economics, 29, 1141-1150.

Oh, W., and K. Lee (2004). Energy consumption and economic growth in Korea: testing the causality relationship. Journal of Policy Modeling, 26, 973-981.

Pakistan, Government of (2009). Economic Survey (Various Issues). Ministry of Finance.

Pakistan, Government of. (2008). Hydel Power Potential. Private Power and Infrastructure Board, Ministry of Water and Power.

Pakistan, Government of (2008). Pakistan Energy Yearbook 2007. Hydrocarbon Development Institute of Pakistan, Ministry of Petroleum and Natural Resources.

Pakistan, Government of. (2008). Pakistan’s Thar coal power generation potential. Private Power and Infrastructure Board, Ministry of Water and Power.

Pakistan, Government of (2009). Private Power and Infrastructure Board, Ministry of Water and Power.

Paul, S., and R. N. Bhattacharya (2004). Causality between energy consumption and economic growth in India: a note on conflicting results. Energy Economics, 26, 977-983.

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, 35, 2031-2037.

Shiu, A., and P. –L. Lam (2002). Electricity consumption and economic growth in China. Energy Policy, 32, 47-54.

Soytas, U., & R. Sari (2002). Energy consumption and GDP: causality relationship in G-7 countries and emerging markets. Energy Economics, 25, 33-37.

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

Wolde-Rufael, Y. (2006). Electricity consumption and economic growth: a time series experience for 17 African countries. Energy Policy, 34, 1106-1114.

Wolde-Rufael, Y. (2008). Energy consumption and economic growth: the experience of African countries revisited. Energy Economics, 31, 217-224.

Yang, H.Y. (2000). A note on the causal relationship between electricity and GDP in Taiwan. Energy Economics, 22, 309–317.

Yoo, S.-H. (2004). Electricity consumption and economic growth: Evidence from Korea. Energy Policy, 33, 1627-1632.

Yoo, S.-H. (2005). The causal relationship between electricity consumption and economic growth in the ASEAN countries. Energy Policy, 34, 3573-3582.

Yu, E.S.H., and J. Y. Choi (1985). The causal relationship between electricity and GNP: an international comparison. Journal of Energy and Development, 10, 249–272.

Yuan, J.H. et al (2008). Energy consumption and economic growth: Evidence from China at both aggregated and disaggregated levels. Energy Economics, 30, 3077-3094.

Zamani, M. (2006). Energy consumption and economic activities in Iran. Energy Economics, 29, 1135-1140.