The Determinants and Forecasting of Coal Consumption in Pakistan

Abstract

Pakistan faces severe energy crisis which has serious repercussion on different segments of the economy. Therefore it is important to identify the main determinants of energy consumption. Furthermore to accurately forecast the energy demand is crucial for policy origination and proper implementation to overcome ongoing energy crisis. This paper devoted to assess the determinants and forecasting of coal consumption in Pakistan using time series data from 1972 to 2014. For the analysis of data, ADF, Johansen co-integration test, ECM, multiple regression and ARIMA models were used. The empirical results of the study reveal the existence of long run relationship among variables of interest and ECM technique confirms stable long run equilibrium on the basis of short run dynamics for coal consumption. It is found from regression results that GDP, total energy import (coal) and cement production are statistically significant determinants of coal consumption. Further the forecasting results of ARIMA models predict increasing trend in coal demand from 2015 to 2025. Moreover, the study results suggest that coal consumption is inelastic to income and energy prices which mean there is need for economic deregulation and modification in energy market in the shape of privatization and liberalization. This study further suggests that government and private sectors should inject more funds to energy sector in favor of technology and to enhance energy supply to the meet increasing demands of energy.

Keywords: Energy Crisis, Coal consumption, ARIMA and Pakistan.