Natural gas consumption and economic growth: cointegration, causality and forecast error variance decomposition tests for Pakistan

Muhammad Shahbaz, Chandran V G R and Azeem Pervaiz
Authors registered in the RePEc Author Service: Chandran V G R (vgrchan@gmail.com)

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the relationship between natural gas consumption and economic growth in Pakistan using a multivariate model by including capital and labor as the control variables for the periods of 1972-2009. The results of the ARDL bounds testing indicate the presence of cointegration among the variables. The estimated long-run impact of gas consumption (0.49) on economic growth is greater than other factor inputs suggesting that energy is a critical driver of production and growth in Pakistan. Furthermore, the results of causality test and variance decomposition analysis suggest a unidirectional causality running from natural gas consumption to economic growth. Gas being the primary source of energy in Pakistan, the implications of this study is that natural gas conservation policies could harm growth and, therefore, requires the policy makers to improve the energy supply efficiency as well as formulate appropriate policy to attract investment and establish public-private partnership initiatives.

Keywords: Natural Gas Consumption; Growth; Pakistan; Cointegration; Causality (search for similar items in EconPapers)
JEL-codes: Q4 (search for similar items in EconPapers)
Date: 2011-11-26, Revised 2011-11-30
New Economics Papers: this item is included in nep-ene and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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