Testing the relationship between electricity supply, development of industrial sector and economic growth: An empirical analysis using time series data for Pakistan

Abstract

Industrial sector of a country is an engine to economic growth, a sustained and incessant supply of electricity is an important determinant of industrial sector performance, which further contributes to better growth of economic indicators. This research study analyzes the joint role of electricity supply and industrial sector development for economic growth of Pakistan, moreover it also finds the impact of electricity shortage on overall economic growth. Theoretically this study is based on endogenous growth model, and empirically it applies Auto Regressive Distributed Lag (ARDL) approach to find short run as well as longrun estimates. Major findings of the study include that labor, capital, electricity supply and industrial sector development play an important role for improving the economic growth of Pakistan and shortage of electricity results in dismal performance of industrial sector. Major recommendations include that, despite there are policies and incentives in the industrial sector, it cannot be improved or contribute to economic growth, unless the problem of electricity is fixed.