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Tahir Mahmood* and Muhammed Tayyab Ayaz** ()

Pakistan Journal of Applied Economics, 2018, vol. 28, issue 1, 47-64

Abstract: Energy is a crucial input in the process of economic growth. Sustainable economic growth necessitates the sufficient and continuous availability of energy. Pakistan is confronting energy insecurity which is seriously hindering the economic development and this study is an attempt to investigate the relationship between energy security and economic growth. The major concern of energy security is associated with the availability of suitable energy supply in cheap and consistent way to fulfill energy demand in the future. In this study, the demand and supply gap of energy is used as a proxy variable for energy security. The data source is the Energy Information Administration (EIA) where data is available at disaggregate level for different sources of energy (i.e., oil, gas, coal and electricity) for the period of 1980 to 2012. Therefore, aggregate variables are generated by converting data into unified unit of measurement. The Error Correction Model (ECM) is used to analyze the short-run and long-run causality between energy gap and the economic growth. The results show that unidirectional causality runs from energy demand and supply gap to economic growth in short-run as well as in the long-run. This relationship is negative and statistically significant in both the short- run and the long run which indicates that low energy security (i.e., increasing energy gap) halts the economic growth of Pakistan. Consequently, the study concludes that government should focus on better management of energy demand and energy supply.

Date: 2018
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