Energy Consumption and Economic Growth: Empirical Evidence from Pakistan

This study investigates the relationship between energy consumption and economic growth for Pakistan based on annual data for the period of 1972-2012. The demand for energy is increasing rapidly in the globalizing world. Most of the countries are facing shortage of energy and consequently it is severely affecting the economic growth. In Pakistan, there is insufficient investment in the energy sector to the extent that majority of commercial energy infrastructure is still underdeveloped. There are many flaws in the demand side and supply side especially relating to payments. Consequently a huge amount is disbursed on account of circular debit in Pakistan. The empirical results state that the consumption of electricity is significantly stimulating economic growth among other sources of energy. The oil consumption is also affecting economic growth adversely because of its high volume of import. The variable of trade openness has also positive impact on economic growth in the period. The study has important policy implication for Pakistan’s economy that there should be shift from expensive imported fuel (oil) to indigenously available alternative fuel (gas or coal) in order to reduce import burden and consequently current account balance. The government should make short run as well as long run plans of low-priced energy generation domestically to meet the needs of high energy consumption