Energy Consumption and Economic Growth in Pakistan: A Sectoral Analysis

Nadeem, Sana and Munir, Kashif (2016): Energy Consumption and Economic Growth in Pakistan: A Sectoral Analysis.

Abstract

The study aimed at investigating the relationship between energy consumption at aggregate and disaggregate levels i.e., oil, coal, gas and electricity in different sectors (commercial, agriculture, industry, power and transport) of the economy with the economic growth in Pakistan. Annual time series data for the time period ranging from 1972 to 2014 has been used in this study. Autoregressive distributed lag bound testing approach for cointegration and to find the relationship between variables Granger causality test is applied. The results of the study showed that there exists a long run relationship between the dependent variable (economic growth) and independent variables (aggregate and disaggregate oil, coal, gas and electricity consumption in different sectors). It is also found that there exists a Neutrality Hypothesis between aggregate and disaggregate oil consumption and Conservation Hypothesis is found in aggregate and disaggregate coal, gas and electricity consumption. This study recommends that government should increase job opportunities in industrial sector where oil is used for production, shift their burden to cheap available resource from coal and transfer the units of electricity to industrial sector so that economic growth of Pakistan can be enhanced.

• Item Type: MPRA Paper
• Language: English
• Keywords: Energy Consumption, Economic Growth, Disaggregate, ARDL, 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 > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Abid, M., & Mraihi, R. (2015). Disaggregate energy consumption versus economic growth in Tunisia: cointegration and structural break analysis. Journal of Knowldge Economy, 6(4), 1104-1122.

Amiri, A., & Zibaei, M. (2012). Granger causality between energy use and economic growth in France with using geostatistical models. MPRA Paper No. 36357.

Apergis, N., & Payne, J. E. (2009). Energy consumption and economic growth: Evidence from the Commonwealth of Independent States. Energy Economics , 31, 641-647.

Apergis, N., & Payne, J. E. (2011). On the causal dynamics between renewable and non-renewable energy consumption and economic growth in developed and developing countries. Energy Systems , 2, 299-312.

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

Bartleet, M., & Gounder, R. (2010). Energy consumption and economic growth in New Zealand: Results of trivariate and multivariate models. Energy Policy , 38, 3508-3517.

Chaudhry, I. S., Safdar, N., & Farooq, F. (2012). Energy Consumption and Economic Growth: Empirical Evidence from Pakistan. Pakistan Journal of Social Sciences, 32(2), 371-382.

Cheng, B. S. (1999). Causality between Energy Consumption and Economic Growth in India: An Application of Cointegration and Error-Correction Modeling. Indian Economic Review, New Series, 34(1), 39-49.

Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366), 427-431.

Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: representation, estimation and testing. Econometrica, 55(2), 251-276.

Furuoka, F. (2015). Electricity consumption and economic development in Asia: new data and new methods. Asian Pacific Economic Literature, 19(1), 102-125.

Gbadebo, O. O., & Okonkwo, C. (2009). Does energy consumption contribute to economic performance? Emprirical Evidence from Nigeria. EAST-WEST Journal of Economics and Business, 12(2), 43-79.

Granger, C. W. (1988). Causality,cointegration and control. Journal of Economic Dynamics and Control, 12(2-3), 551-559.

Halicioglu, F. (2007). Residential electricity demand dynamics in Turkey. Energy Economics , 29, 199-210.

Hou, Q. (2009). The Relationship between Energy Consumption Growths and Economic Growth in China. International Journal of Economics and Finance, 1(2), 232-237.

Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration-with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210.

Khan, M. A., & Ahmad, U. (2008). Energy Demand in Pakistan: A Disaggregate Analysis. The Pakistan Development Review, 47(4), 437-455.

Lang, Y. C., Lin, H. P., & Chang, C. H. (2010). Linear and nonlinear causality between sectoral electricity consumption and economic growth: Evidence from Taiwan. Energy Policy , 38, 6570-6573.

Lee, C. C., & Chang, C. P. (2007). The impact of energy consumption on economic growth: Evidence from linear and nonlinear models in Taiwan. Energy, 32(12), 2282-2294.

Lise, W., & Montfort, K. V. (2007, November). Energy consumption and GDP in Turkey: Is there a cointegration relationship? Energy Economics, 29(6), 1166-1178.

Narayan, P. K., & Smyth, R. (2008). Energy consumption and real GDP in G7 countries: New evidence from panel cointegration with structural breaks. Energy Economics , 30, 2331-2341.

Oh, W., & Lee, K. (2004). Causal relationship between energy consumption and GDP revisited: the case of Korea 1970–1999. Energy Economics , 26, 51-59.

Pempetzoglou, M. (2014). Electricity Consumption and Economic Growth: A Linear and Nonlinear Causality Investigation for Turkey. International Journal of Energy Economics and Policy, 4(2), 263-273.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.

Raheem, I. D., & Yusuf, A. H. (2015). Energy consumption-economic growth nexus: evidence from linear and nonlinear models in selected African countries. Internatonal Journal of Energy Economics and Policy, 5(2), 558-564.

Saatci, M., & Dumrul, Y. (2013). The relationship between energy consumption and economic growth: evidence from a structural break analysis for Turkey. International Journal of Energy Economics and Policy, 3(1), 20-29.

Schclarek, A. (2004). Debt and economic growth in developing and industrial countries. Lund University Department of Economics Working Paper, 34.

Siddiqui, R. (2004). Energy and Economic Growth in Pakistan. The Pakistan Development Review, 43(2), 175-200.

Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65-94.

Wei, S. Z., Chen, C. F., & Zhu, Z. (2008). Economic growth and energy consumption revisited—Evidence from linear and nonlinear Granger causality. Energy Economics , 30, 3063-3076.

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

Wolde, Y., & Rufael. (2009). Energy consumption and economic growth: The experience of African countries revisited. Energy Economics , 31, 217-224.

Yoo, S. H., & Kwak, S. Y. (2010). Electricity consumption and economic growth in seven South American countries. Energy Policy , 38, 181-188.

Yuan, J. H., Kang, J. G., Zhao, C. H., & Hu, Z. G. (2008). Energy consumption and economic growth: Evidence from China at both aggregated and disaggregated levels. Energy Economics, 30(6), 3077-3094.

Zachariadis, T., & Pashourtidou, N. (2007). An empirical analysis of electricity consumption in Cyprus. Energy Economics , 29, 183-198.