Electricity Consumption, Financial Development and Economic Growth Nexus in Pakistan: A Visit

Muhammad Shahbaz

Bulletin of Energy Economics (BEE), 2015, vol. 3, issue 2, 48-65

Abstract: This study explores a relationship between electricity consumption and economic growth in Pakistan by incorporating financial development within the neoclassical production function. The Autoregressive Distributed Lag (ARDL) bounds testing approach has been applied to data from 1972-2012. To test causality among the series, the vector error correction model (VECM) has been used; supplemented by the innovative accounting approach (IAA) to check for the robustness of causality. Our findings confirm cointegration. The results indicate that financial development, electricity consumption, capital and labor promote economic growth. The causality analysis shows the feedback effect between electricity consumption and economic growth, and financial development and electricity consumption. Finally, economic growth and financial development Granger cause each other. This implies that electricity conservation policies may not help. The government of Pakistan should encourage R and D in an effort to develop new energy savings technology for sustained economic growth.

Keywords: Electricity Consumption; Financial Development; Economic Growth; Pakistan (search for similar items in EconPapers)
JEL-codes: Q4 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (26)

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