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A Dynamic Linkage between Financial Development, Energy Consumption and Economic Growth: Evidence from an Asymmetric and Nonlinear ARDL Model

Author

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  • Imran Khan

    (Binjiang College, Nanjing University of Information Science & Technology, Wuxi 214000, China
    Department of Economics, The University of Haripur, Haripur 22620, Pakistan)

  • Faheem Ur Rehman

    (Department of Economics, The University of Haripur, Haripur 22620, Pakistan
    Laboratory of Regional and International Economics, Graduate School Economics and Management, Ural Federal University, 620075 Yekaterinburg, Russia)

  • Paula Pypłacz

    (Faculty of Management, Czestochowa University of Technology, 42-201 Czestochowa, Poland)

  • Muhammad Asif Khan

    (Department of Commerce, Faculty of Management Sciences, University of Kotli, Azad Jammu and Kashmir 11100, Pakistan)

  • Agnieszka Wiśniewska

    (Faculty of Management, University of Warsaw, 02-678 Warszawa, Poland)

  • Katarzyna Liczmańska-Kopcewicz

    (Faculty of Economic Sciences and Management, Nicolaus Copernicus University in Torun, 87-100 Torun, Poland)

Abstract

Developing countries, including Pakistan, need a considerable effort to withstand economic growth; however, these countries have to cope with greenhouse gases emission and other environmental concerns. Financial advancement gives rise to modern, sometimes even innovative and energy-efficient technologies and, thus, contributes to a decline in energy usage among market entities: organizations and households. The current study explores the nonlinear asymmetric relationship between economic growth (Y) and the selected exogenous variables in Pakistan by incorporating time series data spanning from 1971 to 2016. Economic growth was considered as a target variable, while energy consumption (EC), electric power consumption (EPC), financial development (FD), and energy imports (EM) were considered independent variables. To investigate cointegration among the given variables, a nonlinear ARDL bound testing approach was employed. BDS independence test was used to check the nonlinearity, and a structural break unit root test was used for testing data stationarity. The findings confirm the presence of co-integration in the selected variables. A symmetric unidirectional significant causality exists running from EPC to Y, while a bidirectional symmetric causality was found between FD and Y. In contrast, any negative shocks in EPC, FD, and EM were found to have a positive asymmetric effect on Y. Meanwhile, a neutral effect was found between EC and Y. The outcomes of this study can provide guidelines for future researchers and policymakers.

Suggested Citation

  • Imran Khan & Faheem Ur Rehman & Paula Pypłacz & Muhammad Asif Khan & Agnieszka Wiśniewska & Katarzyna Liczmańska-Kopcewicz, 2021. "A Dynamic Linkage between Financial Development, Energy Consumption and Economic Growth: Evidence from an Asymmetric and Nonlinear ARDL Model," Energies, MDPI, vol. 14(16), pages 1-15, August.
    • Handle: RePEc:gam:jeners:v:14:y:2021:i:16:p:5006-:d:614743
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