The dynamics of electricity consumption and economic growth: A revisit study of their causality in Pakistan

Abstract

This study revisits the relationship between electricity consumption and economic growth in Pakistan by controlling and investigating the effects of two major production factors – capital and labor. The empirical evidence confirms the cointegration among the variables and indicates that electricity consumption has a positive effect on economic growth. Moreover, bi-directional Granger causality between electricity consumption and economic growth has been found. The finding suggests that adoption of electricity conservation policies to conserve energy resources may unwittingly decline economic growth and the lower growth rate will in turn further decrease the demand for electricity. Therefore, government contemplating such conservationist policies should instead explore and develop alternate sources of energy as a strategy rather than just increasing electricity production per se in order to meet the rising demand for electricity in their quest towards sustaining development in the country.