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Finance-Growth-Energy Nexus and the Role of Agriculture and Modern Sectors: Evidence from ARDL Bounds Test Approach to Cointegration in Pakistan

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  • Shahbaz, Muhammad
  • Islam, Faridul
  • Sabihuddin Butt, Muhammad

Abstract

This paper explores the relationship between financial development and energy consumption by incorporating economic growth, agriculture and modern sectors in Pakistan over the period of 1972-2011. The Autoregressive Distributive Lag (ARDL) bounds testing approach to cointegration, assuming structural breaks, confirms cointegration. Innovation accounting approach, used to examine the direction of causality, shows that economic growth causes energy demand. We also fine bidirectional causality between financial development and energy consumption; and between modern sector growth and energy consumption. Energy consumption Granger causes agriculture growth. The results offer valuable insights for policymakers in crafting appropriate energy policy for Pakistan.

Suggested Citation

  • Shahbaz, Muhammad & Islam, Faridul & Sabihuddin Butt, Muhammad, 2015. "Finance-Growth-Energy Nexus and the Role of Agriculture and Modern Sectors: Evidence from ARDL Bounds Test Approach to Cointegration in Pakistan," MPRA Paper 62848, University Library of Munich, Germany, revised 14 Mar 2015.
    • Handle: RePEc:pra:mprapa:62848
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    Keywords

    Energy Consumption; Economic Growth; Financial Development; Pakistan;
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    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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