The Role of Labor Force, Physical Capital, and Energy Consumption in Shaping Agricultural and Industrial Output in Pakistan

Abstract

The labor force, physical capital, and energy sources are key economic drivers that enhance the output levels of developing economies. Despite their significance, the impact of these factors on agricultural and industrial output in Pakistan remains underexplored. This study aims to address this gap by examining the effects of the labor force, physical capital, and energy consumption—including electricity, oil, and gas—on agricultural and industrial output. Additionally, we explore the combined effects of electricity and oil consumption on these sectors. Based on unit root test results, which indicate that the variables as either I(0) or I(1), the Autoregressive Distributed Lag (ARDL) technique is selected. This method is particularly effective for handling mixed integration orders and provides robust estimates in small sample sizes, allowing for a thorough examination of both short- and long-run dynamics. Using annual time-series data from Pakistan for the period 1990–2022, the empirical results reveal that higher levels of the labor force, physical capital, electricity consumption, oil consumption, and gas consumption significantly increase agricultural and industrial output in both the short and long run. Furthermore, the findings reveal that the combined effect of electricity and oil consumption has a stronger impact on agricultural and industrial output compared to their individual effects. These results are further validated using alternative econometric techniques such as DOLS and FMOLS. To enhance Pakistan’s agricultural and industrial performance, policies should prioritize investment in human capital and physical capital development, ensure reliable and efficient energy supplies, and promote integrated energy management strategies. These steps are crucial for fostering sustainable economic growth and productivity in both sectors.