Cointegration and Causality Analysis of Dynamic Linkage between Industrial Energy Consumption and Economic Growth in Pakistan

Abbas Ali Chandio,Yuansheng Jiang,Ilhan Ozturk,Abdul Rauf,Fayyaz Ahmad

doi:10.3390/su11174546

Abstract

Energy consumption is a crucial factor to promote industrial sector contribution in an economy for its economic progression. Indeed, Pakistan is an emerging country, but recently adjoining with a very severe deficit of electricity sources. Hence, the industry value added growth leading to economic progression is also fronting inevitable challenges to promote the industry growth. The main objective of the study is to investigate the linkages between industrial sector oil, gas and electricity consumption, and renewable energy consumption with economic development in Pakistan. The findings display evidence of cointegration and a long-run relationship between the consumption of industrial energy and economic growth in Pakistan. The results showed that industrial electricity consumption and industrial gas consumption have a positive and statistically significant impact on economic growth both in the long run and the short run in Pakistan. Industrial oil consumption negatively impacts economic growth in the long run, but positively and statistically significantly impacts economic growth in the short run in Pakistan. Moreover, indications through the vector error correction model (VECM) model confirmed bi-directional relationships of industrial sector oil consumption and economic growth in Pakistan. Furthermore, the uni-directional nexus instituted between economic growth to industrial electricity consumption, industrial gas consumption to industrial electricity consumption, and industrial oil consumption to industrial electricity consumption. The findings uncovered solid interconnections among the studied variables and suggested that the Pakistani government should build a robust policy to diminish the oil, gas, and fossil fuels consumption for electricity production, as a replacement to depend on solar, hydro, wind, and biomass energy sources in Pakistan. Consequently, the government should promote more gas concentrated projects, as these will alleviate the contests of gas dearth and provide it to the industry at cheap prices with ease.

Highlights

Policy makers have been trying to tackle the issue of climate change in recent decades
The uni-directional nexus instituted between economic growth to industrial electricity use, manufacturing gas consumption to industrial electricity utilization, and industrial oil consumption to industrial electricity usage over 1983 to 2017 in the Pakistan
This work explored the causal connection between industrial energy use and financial evolution in Pakistan using annual data from 1983 to 2017

Summary

Introduction

Policy makers have been trying to tackle the issue of climate change in recent decades. The Paris Climate Conference (COP21) aims to confirm the goal of restraining the worldwide temperature to the minimum level. All parties agreed to report on their progress in executing their objectives and pursuing advancement towards long-run goals through a strong, apparent, and responsible system. The scheme of these energy reduction plans has a substantial effect on economic development. Following the pioneering effort of Kraft and Kraft [1], several studies have examined the causal association between energy use and fiscal development. At the general or state level, electricity use is closely linked to economic progress [2,3]. As earlier studies have shown, monetary progress depends to a great degree on energy inputs. Pakistan is a developing country with a heavy dependence on energy consumption for its manufacturing industry

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Conclusion