ENERGY CONSUMPTION AND ECONOMIC GROWTH: Evidence from Pakistan

Abstract

This paper investigates the relationship between energy consumption and economic growth of Pakistan. A time series data has been used for the period of 1973-2006. GDP is taken as dependent variable and energy consumption as independent variable. Augmented Dicky Fuller test has been used to check the stationary of the variables and both variables found stationary at level. The results of Granger causality test show uni-directional causality running from GDP to energy consumption. The results of ordinary least squares test show positive relation between GDP and energy consumption in Pakistan. One percent increase in energy consumption will raise GDP by 1.23%. Diagnostic tests confirm that residuals are normally distributed, coefficients are stable and there is no ARCH effect. Pakistan economy is energy dependent. Shortage of energy means lower the economic growth of Pakistan. We should utilize our own sources to meet the needs of energy like by constructing biogas plants in villages and solar energy is also alternative source. This can reduce the dependency on foreign sources.