EFFECT OF DISAGGREGATED ENERGY CONSUMPTION ON PAKISTAN ECONOMIC GROWTH (ARDL APPROACH)

Abstract

Important aim of the study is to explore the effect of disaggregated energy consumption on the economic growth of Pakistan. The empirical analysis is based on the time series data for the era 1972 to 2018 and data source is World Bank (WB) and Pakistan Economic Survey. Gross Domestic Product (GDP) and Gross Fixed Capital Formation are used as the proxies of the economic growth and Domestic Investment respectively in this model. Bound Test for Co-integration, Error Correction Mechanism (ECM) and Pairwise Granger Causality Tests are applied to get the results in the study. According to the ARDL analysis ELEC is significant but has negative effect on the GDP of Pakistan in the short-run and long-run both. DI and ELF are significant and positive impact on the GDP of Pakistan’ economy in the short-run and long-run both. OIL is significant and positive effect on the GDP of Pakistan in the long-run. The Pairwise Granger Causality Tests, show GDP does Granger Cause GAS, COAL does Granger Cause GDP, GDP does Granger Cause FDI, GAS does Granger Cause OIL, GAS does Granger Cause COAL, FDI does Granger Cause GAS, ELF does Granger Cause COAL, DI does Granger Cause FDI, ELF does Granger Cause FDI, all these show the uni-directional granger causalities. While DI does Granger Cause GDP and GDP does Granger Cause DI. Bi-directional granger causality exists between the DI and GDP. Similarly, FDI does Granger Cause OIL and OIL does Granger Cause FDI. Bi-directional granger causality is present in the association of FDI and OIL. Moreover, DI does Granger Cause GAS and GAS does Granger Cause DI and indicate the presence of bi-directional granger causality between them in Pakistan. The study suggests that electricity supply shortage can harm the economic growth of Pakistan. Therefore, there is a need to overcome this problem and made those policies in which electricity supply should become certain to its users. The usage of Pakistan’s others energy sources like oil, gas and coal might be enhance for the Pakistan’s economic growth.