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Natural gas consumption and economic growth: cointegration, causality and forecast error variance decomposition tests for Pakistan

  • Muhammad, Shahbaz
  • V G R, Chandran
  • Pervaiz, Azeem

This paper examines the relationship between natural gas consumption and economic growth in Pakistan using a multivariate model by including capital and labor as the control variables for the periods of 1972-2009. The results of the ARDL bounds testing indicate the presence of cointegration among the variables. The estimated long-run impact of gas consumption (0.49) on economic growth is greater than other factor inputs suggesting that energy is a critical driver of production and growth in Pakistan. Furthermore, the results of causality test and variance decomposition analysis suggest a unidirectional causality running from natural gas consumption to economic growth. Gas being the primary source of energy in Pakistan, the implications of this study is that natural gas conservation policies could harm growth and, therefore, requires the policy makers to improve the energy supply efficiency as well as formulate appropriate policy to attract investment and establish public-private partnership initiatives.

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File URL: http://mpra.ub.uni-muenchen.de/35103/1/MPRA_paper_35103.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35103.

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Date of creation: 26 Nov 2011
Date of revision: 30 Nov 2011
Handle: RePEc:pra:mprapa:35103
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