Dynamic Long-Run Connections among Renewable Energy Generation, Energy Consumption, Human Capital and Economic Performance in Pakistan

Abstract

The current research attempts to systematically investigate the causal interactions among renewable energy generation, aggregated energy use, human capital and economic performance in Pakistan both in the short-run and long-run for the period of 1990-2016. For this purpose, unit root analysis has been conducted employing, among others, augmented dicky fuller-generalized least squares test. Based on the order of integration, the Johansen Juselius (JJ) cointegration testing has been employed to confirm the existence of long-run, which is followed by vector error correction model (VECM) to calculate short-run Granger causality analysis. The empirical findings unearthed the bilateral causal connection between aggregated energy use and economic performance, renewable energy generation and economic performance, and human capital and economic performance. Thus, it confirmed the existence of feedback effect for aggregated energy use, renewable energy generation, and human capital in their relation to economic performance. However, a unilateral positive causal connection is revealed running from renewable energy generation and human capital to aggregated energy use, and from human capital to renewable energy generation in both the long-run as well as short run. Additionally, the causal association running from aggregated energy use and renewable energy generation to economic performance has been exposed in the long-run as well as short-run, hence supporting the growth hypothesis. The findings signified the importance of enhanced generation of renewable energy along with the promotion of aggregated energy use for economic performance in Pakistan.