A Time Series Analysis of Energy Consumption, Energy Prices and Economic Growth in Pakistan

Abstract

The present study is conducted to investigate the impact of Energy Consumption (EC) on the Economic Growth (EG) in Pakistan by using a trivariate model. Time series data of macroeconomic determinants of Energy Consumption (EC), Energy Prices (EP) and Economic Growth (EG) are used to analyze the linkage among the variables. Annual data are collected from different published sources like World Development Indicators (WDI), BP Statistical Review and Economic Surveys of Pakistan for the period 1971-2014. Augmented Dickey Fuller (ADF) unit root test and Phillips Perron unit root test are used to examine the stationarity of data and all the variables are found stationary in differenced form. Short run and long run linkage among the variables is examined through Johansen co-integration test and the results confirm the existence of one co-integrating vector among the variables. Granger causality test under Vector Error Correction Model (VECM) is applied to observe the direction of between Energy Consumption (EC), Energy Prices (EP) and economic growth (EG). Unidirectional causality is found from Economic Growth (EG) to Energy Consumption (EC) and unidirectional causality from Energy Consumption (EC) to Energy Prices (EP) is also found in short run as well as in long run. On the basis of result of the study, conservation policy regarding to the Energy Consumption (EC) is suggested with a negligible or no effect on Economic Growth (EG).