Empirical Insights into the Long-Run Linkage between Households Energy Consumption and Economic Growth: Macro-Level Empirical Evidence from Pakistan

Abstract

This study is a maiden empirical attempt to examine the long-run linkage between households’ usage of energy and economic progression in Pakistan from the period of 1972–2017. The Autoregressive Distributive Lag (ARDL) bounds testing method to co-integrate is employed to expose the causality dynamics between the variables such as households’ electricity consumption, households’ gas consumption, population growth, and per capita Gross Domestic Product (GDP) in Pakistan. The study adopted three renowned unit root approaches through the use of the Augmented Dickey-Fuller (ADF), the Phillips-Perron (P-P), and Zivot-Andrews (Z&A) tests to check the stationarity of the variables, while the Johansen cointegration technique is also employed to assess the robustness of the long-run association. The validity of outcomes is also checked with casualty and variance decomposition. The estimated results reveal that, in both the short and long run, households’ electricity and gas usage positively affect economic growth, while population growth in the long-run has a negative impact, but the short-run analysis has a positive impact on economic growth in Pakistan. Additionally, the Granger causality and variance decomposition confirm the robustness of outcomes and suggesting a long run association among the variables, and a unidirectional causal link running from three variables to economic growth of Pakistan in the short run.