Energy consumption: The importance of institutional quality in Pakistan

Rubina Ilyas

doi:10.34260/jaebs.518

Abstract

The energy sector of Pakistan has undergone several changes over the previous several years, due to the ever-increasing energy consumption. The objective of this study is to determine the extent to which the consumption of energy sources can be attributed to Pakistan’s institutional quality, based on the perception of positive impact of institutional quality on facilitation of public goods. In this context, the demand functions of energy sources (electricity, natural gas and petroleum products) for four main economic sectors(i.e., residential, industry, commercial and agricultural sectors), have been examined by employing bound testing to cointegration (ARDL approach), over a period of 35 years (1984-2019). The analysis reveals that institutional quality has significant positive impact on energy consumption. The results of the study provide implications for energy sector reforms by illustrating the importance of institution-building policy efforts.

Highlights

Pakistan has experienced a rapid growth in consumption of primary energy over the last few decades
According to Pakistan Country Statistics (2018), the primary energy consumption has grown by 150% in the last twenty years
Pakistan spent more than 2 percent of its Gross domestic product (GDP) on electricity subsidies, which increased national debt and weakened the country’s external position

Summary

Introduction

Pakistan has experienced a rapid growth in consumption of primary energy over the last few decades. According to Pakistan Country Statistics (2018), the primary energy consumption has grown by 150% in the last twenty years. The energy crisis has become an inevitable challenge due to inefficient resource management, lack of Rubina Ilyas investment in the infrastructure and absence of a well-planned policy (Alahdad, Z., 2012). Successive energy policies have focused on the expansion and diversification of energy system through installation of new energy projects, yet the production capacity fails to fulfill the energy needs. The country still faces serious challenges to meet its energy needs (Siddiqui, 2004; Hye and Raiz, 2008). In order to ensure efficient use of energy the pricing policy has undergone a number of changes. OGRA which conduct publics hearings and set prices for natural gas and petroleum products have capped the petroleum products prices in different periods (Afia Malik, 2008)

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Conclusion