Abstract
This study analyzes the relationship between disaggregate energy consumption i.e. oil, coal, gas, and electricity consumption in different sectors with economic growth. The study uses annual time series data of Pakistan from 1972 to 2016 and applies ARDL bound test for cointegration, while Granger causality test is used for short run causality. Results showed that oil consumption in industrial and transport sector, gas consumption in fertilizer and power sector, and electricity consumption in industrial sector have positive and significant impact on economic growth in the long run. However, oil consumption in agricultural and power sector, coal consumption in power and brick kilns sector, gas consumption in cement sector, and electricity consumption in agricultural sector have negative and significant impact on economic growth. However, no causality exists between oil consumption and economic growth, while unidirectional causality exists from economic growth to coal consumption in brick kilns sector, gas consumption in industrial sector, and electricity consumption in agricultural sector in the short run. For sustainable energy supply, reduce the consumption of oil and coal to indigenously available resources, however, for sustainable economic growth, encourage industrial sector to use electricity, while fertilizer and power sector to use gas.
Highlights
Energy has been considered as a key factor of production in addition to capital, labor, human capital and technology
The objective of this study is to analyze the relationship between energy consumption at disaggregate level i.e. oil, coal, gas and electricity consumption in different sectors i.e. commercial, agricultural, industrial, power, transport and etc. with economic growth in Pakistan
The theoretical model used in this study is the neoclassical growth model which provide framework to analyze the relationship between economic growth and oil, coal, gas and electricity consumption
Summary
Energy has been considered as a key factor of production in addition to capital, labor, human capital and technology. Energy plays an important role in the economic growth of any country. Efficient use of energy may lead to higher economic growth, while inefficient usage can decrease the economic growth of a country. Literature shows mix result about the direction of causality between energy consumption and economic growth. If there is unidirectional causality from energy consumption to economic growth it means that country is energy dependent and only increase in energy can boost economic growth and known as growth hypothesis (Saatci and Dumrul, 2013). If causality runs from economic growth to energy consumption it means that energy consumption increased in response to increase in economic growth and termed as conservation hypothesis (Lise and Montfort, 2007)
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