Causality between Energy Consumption and Economic Growth: The Case of Pakistan
AbstractThis study seeks to determine the direction of causality between energy consumption (EC) and economic growth (EG), using annual data from 1971 to 2007. In our empirical analysis, we implement a bounds-testing approach to co-integration and an augmented form of the Granger causality test to identify the direction of the relationship between these variables both in the short and long run. Our findings suggest bidirectional causality between EG and EC in the short run; in the long run we find unidirectional causality from EG to EC. EC does not lead to EG in the long run because higher energy prices (oil prices) increase the cost of business, leading to a negative effect on EG. Additionally, when energy prices fluctuate, they create uncertainty that also affects economic growth. The study recommends direct investment in local energy resources.
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Bibliographic InfoArticle provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.
Volume (Year): 13 (2008)
Issue (Month): 2 (Jul-Dec)
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Web page: http://www.lahoreschoolofeconomics.edu.pk/EconomicsJournal/LJEIntro.aspx
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Economic Growth; Energy Consumption; Pakistan.;
Find related papers by JEL classification:
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
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