Economic growth and energy consumption nexus in Pakistan

Abstract

PurposeThis study aims to examine the relationship between electricity consumption per capita (ELEC) and real per capita income (Y), as the direction of causation of this relationship remains controversial in the existing literature. It also seeks to explore the relationship between energy consumption per capita (ENC) and real per capita income, over a 34‐year period (between 1975 and 2009).Design/methodology/approachThe study uses Johansen cointegration technique to determine the short‐ and long‐run relationship between the variables. The authors also utilize Granger causality test to determine the causal relationship between the selected variables.FindingsThe study provides evidence of bi‐directional causality between the electricity consumption per capita and real per capita income on one hand; and energy consumption per capita and real per capita income on the other hand as the direction of causality has significant policy implications.Research limitations/implicationsThis study does not include all dimensions of the energy growth, but is limited to the three variables which the authors consider to be critical to economic development, including energy consumption, electricity consumption and economic growth.Originality/valueThe study uses a sophisticated econometric technique with additional tests of forecasting framework to examine the effect of energy demand on economic growth over a period of the next ten years, i.e. 2010‐2019, in the context of Pakistan. The impulse response describes the reaction of the system as a function of independent variable that parameterizes the dynamic behavior of the system.

Factors determining energy consumption: Evidence from Indonesia, Malaysia and Thailand

“…The study of Joyeux and Ripple [31] shows causality runs from income to energy consumption for 56 developed and developing countries. Ahmed et al [2] provide evidence of bi-directional causality between the per capita electricity consumption and real per capita income in Pakistan during 1975-2009.…”

“…The study of Grossman and Krueger[25] has shown that with the advanced stage of economic development, the high-polluting industrial economy turns into service economy or technology-based economy with the changes in the economic structure of the country, where the degree of environmental pollution is turn down 2. According to the United Nations Environment Programme (2011: 16) green economy as an economy that leads to "improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities".…”

The Effects of Energy Consumption, Economic Growth and Financial Development on CO2 Emissions in China: A VECM Approach

“…For example, Li [27] found that China's energy consumption has a significant positive effect on economic growth and the eastern region of China has the most effective effect. Ahmed et al [28] investigated the relationship between per capita electricity consumption and per capita real income, and the relationship between per capita energy consumption and economic growth in Pakistan, and found that there is a two-way causal relationship between them.…”

Energy crisis, greenhouse gas emissions and sectoral growth reforms: repairing the fabricated mosaic

“…The results show that determinants of electricity consumption function are co integrated and influx of foreign direct investment, income and population growth is positively related to electricity consumption in Pakistan. Ahmed et al (2013) analyzed the link between electricity consumption per capita and real per capita income, over a 34-year period between 1975 and 2009. The study gives evidence of bidirectional causality between energy consumption per capita and per capita revenue on one hand; and power consumption per capita and actual per capita revenue on the other hand.…”