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Modeling the causal relationship between energy and growth factors: Journey towards sustainable development

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  • Mumtaz, Rehma
  • Zaman, Khalid
  • Sajjad, Faiza
  • Lodhi, Muhammad Saeed
  • Irfan, Muhammad
  • Khan, Imran
  • Naseem, Imran

Abstract

The objective of the study was to find the direction of the causality between energy consumption and six broad categories of growth factors i.e., trade factors, education indicators, growth measures, environmental indicators, health variables and population growth in Pakistan over a period of 1975–2010. For this purpose, cointegration and Granger causality tests have been applied. In this study, energy consumption and growth factors are explicitly included in model. The result shows that trade in services, FDI and exports have a significant and positive contribution to increases energy consumption in Pakistan, however, the intensity of the relationship with the energy consumption is different in nature, as exports have around 2.049 percent increases energy consumption, if there is one percent increase in exports. Imports, on the other hand, have a negative relationship with energy consumption in Pakistan. The impact of education indicators (i.e., education expenditure, primary & secondary school enrollment and literacy rate) on energy consumption is positive, which confirms that education has a strategic role in improving energy efficiency. Sectoral growth (i.e., agriculture, industry, manufacturing, services sector and economic growth) have a positive contribution to increase energy consumption in Pakistan. As, agriculture and industry value added serves as an engine of energy, hence, as agriculture modernizes, energy demand increases. Carbon dioxide emission and natural resource depletion both increases energy consumption in Pakistan, however, arable land decreases energy consumption around 1.743 percent. The impact of health care indicators (i.e., health expenditure, life expectancy and mortality) increases the demand for energy. Energy progress has been seen as a factor of supply and demand which explains the growth of health care expenditures. Population indicators (i.e., population growth, urban population, rural population, unemployment and labor force) have a significant and positive association with the energy consumption in Pakistan. The results of Granger causality indicates that there has been a unidirectional causality running towards energy consumption to trade factors (i.e., trade in services, FDI and imports) but not vice versa. The result indicates that energy consumption is found to Granger cause imports, which means that any reductions in energy consumption, energy conservation polices would reduce imports and lessen the benefits of trade. Similarly, energy consumption Granger cause education factors (i.e., primary and secondary school enrollment); growth factors (i.e., agriculture, industry and manufacturing value added); environmental factor (i.e., carbon dioxide emissions); health factor (i.e., mortality) and population measures (i.e., population growth, urban and rural population) but not vice versa, however, the remaining sub-variables are independent in nature and there has been no causality found with the energy consumption in Pakistan. The overall result concludes that causality running towards energy consumption to macroeconomic factors in Pakistan but not other way around.

Suggested Citation

  • Mumtaz, Rehma & Zaman, Khalid & Sajjad, Faiza & Lodhi, Muhammad Saeed & Irfan, Muhammad & Khan, Imran & Naseem, Imran, 2014. "Modeling the causal relationship between energy and growth factors: Journey towards sustainable development," Renewable Energy, Elsevier, vol. 63(C), pages 353-365.
  • Handle: RePEc:eee:renene:v:63:y:2014:i:c:p:353-365
    DOI: 10.1016/j.renene.2013.09.033
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    Energy; Trade; Education; Health; Environment; Pakistan;

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