Another perspective towards energy consumption factors in Pakistan: Fresh policy insights from novel methodological framework

Abstract

Lately, Pakistan's forecast for electricity consumption has shown an increasing tendency relative to its generating capability, which is concerning for the country's economic and social stability. Therefore, identifying electricity consumption factors may provide a promising mechanism to establish Pakistan's long-term sustainable policy framework. This study intends to gain a better understanding of the factors that influence electricity consumption, specifically electricity prices, economic expansion, industrialization, and urbanization. The study employs novel econometric techniques include; Lee and Strazicich [1] second generation unit root test, dynamic Autoregressive Distributed Lag Simulations (ARDLS) and the Cumulative Fourier Frequency Domain Causality (CFFDC) approach on a large dataset from 1960 to 2019. The findings reveal that energy prices and industrialization have a positive and significant long and short-run influence on energy consumption, whereas economic expansion has a favorable short-term impact on energy consumption. Suggest that energy prices, economic expansion, and industrialization can facilitate Pakistan to overcome its electricity consumption challenges. In addition, the FDC confirmed the links among the variables in the long-medium and short-run. The findings enable the policy-makers to formulate economic policy measures that would compel Pakistan to cope with the problems noted by its reliance on imported fossil fuels during a period of immense economic expansion, rapid urbanization, and use of its natural potential. Further policy suggestions are discussed in detail in the study.