Causality between Energy Consumption and Economic Growth in Pakistan

Abstract

The objective of this study is to examine the causality between energy consumption and economic growth in Pakistan over the period of 1991 to 2006. Pakistan has been facing severe energy crises in the current period and the condition is deteriorating day by day. By applying technique of Granger causality and unit root test, the results infer that electric power consumption is granger causing GDP growth. The implications of the study are that energy conservation policy regarding consumption of energy would not lead to any side-effects on economic growth in Pakistan. The country needs a quantum jump in electricity generation in medium-term scenario to revert the possibilities of load shedding in future due to shrinking gap between demand and supply of electricity.

Keywords: Granger test, GDP, energy consumption.