Energy Input, Price and Industrial Output in Pakistan: A Cointegration Approach

Abstract

The study has utilized the Johansen Method of Cointegration in order to examine the relationship between the disaggregate energy consumption and the industrial output. The oil, gas, coal and electricity consumption variables have been selected for the disaggregate energy consumption. The result confirms the positive effect of disaggregate energy consumption on the industrial output. Furthermore, bidirectional causality has been identified in case of oil consumption, whereas, unidirectional causality running from electricity consumption to the industrial output is also seen. Moreover, unidirectional causality has been observed from the industrial output to the coal consumption, though there is no such causality occurs between the gas consumption and output. The adamant adherence to the conservative energy policies could prove harmful to the industrial production. Therefore, the government has to develop the innovative energy policies in order to cope with the immediate and future energy demands. Additionally, the government must seriously explore the possibilities of using the alternative energy sources such as solar and wind in order to boost up the clean industrial growth as well as meet the required energy demand of this sector.

Keywords: Energy Consumption, Output, Johansen Cointegration Test