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Factors affecting commercial energy consumption in Pakistan: Progress in energy

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  • Zaman, Khalid
  • Mushtaq Khan, Muhammad
  • Ahmad, Mehboob

Abstract

The purpose of this study is to identify major macroeconomic factors that enhance energy consumption for Pakistan through the cointegration, error correction model and Granger causality tests over a 32-year time period, i.e., between 1980 and 2011. The study employed the bivariate cointegration technique to estimate the long-run relationship between the variables; an error correction model was used to determine the short-run dynamics of the system, while Granger causality test was used to find the directions between these variables. The study investigates the relation between four energy consumption variables (i.e., oil/petroleum consumption, gas consumption, electricity consumption and coal consumption) and four macroeconomic factors which have further sub-classifications, i.e., balance of payment (BOP) factors (i.e., exports, imports, trade deficit, worker’s remittances and current account balance), fuel factors (i.e., carbon dioxide emissions, natural resource depletion and net forest depletion), agricultural crops yield per hectare (i.e., wheat, rice, sugarcane, maize and cotton) and industrial production items (i.e., beverages, cigarettes, motor tyres, motor tubes, cycle tyres and cycle tubes) in order to manage robust data analysis. The result confirms the long-run relationship between total commercial energy consumption and macroeconomic factors in Pakistan, as oil/petroleum consumption increases exports, fuel factors, agricultural crops yield per hectare and industrial items; however, the intensity of these factors are different in nature. Carbon dioxide emissions, net forest depletion, beverages, motor tyres and motor tubes are more elastic with oil/petroleum consumption. However, oil/petroleum consumption decreases trade deficit and workers’ remittances in Pakistan. Gas, electricity and coal consumption increases agricultural crops yield per hectare and industrial production which shows that as agriculture and industry modernizes, energy demand increases. Energizing the food production chain is an essential feature of agricultural development which is a prime factor in helping to achieve food security in Pakistan. The empirical results only moderately support the conventional view that energy consumption has significant long-run casual effect on macroeconomic variables in Pakistan. The present study finds evident of unidirectional causality between the commercial energy consumption factors and macroeconomic factors in Pakistan. However, there is some bidirectional causality exist which is running between electricity consumption (EC) and exports, EC to imports, EC to carbon emissions, EC to natural resource depletion (NRD) and EC to wheat. The results conclude that macroeconomic variables tend to positively respond to total primary energy consumption. This indicates that increasing total commercial energy consumption may cause growth variables which show that Pakistan is an input-driven economy.

Suggested Citation

  • Zaman, Khalid & Mushtaq Khan, Muhammad & Ahmad, Mehboob, 2013. "Factors affecting commercial energy consumption in Pakistan: Progress in energy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 19(C), pages 107-135.
  • Handle: RePEc:eee:rensus:v:19:y:2013:i:c:p:107-135
    DOI: 10.1016/j.rser.2012.11.013
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