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Financial Development, Economic Growth, and Electricity Demand: A Sector Analysis of an Emerging Economy

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  • Roubaud, David
  • Shahbaz, Muhammad

Abstract

We employ an augmented production function to examine the association between electricity consumption and economic growth at the aggregate and sectoral levels for the period 1972-2014 for Pakistan. We posit that financial development is an important driver of electricity consumption and economic growth. The unit root test, combined cointegration framework, and VECM Granger causality approach are applied. There is a long-term association between the variables at the aggregate and sectoral levels. Electricity consumption and financial development stimulate economic growth. The causality analysis validates the presence of the feedback effect between economic growth and electricity consumption. Bidirectional causality exists between financial development and electricity consumption in the agriculture and services sectors. Financial development drives electricity consumption in the industrial sector. Policies have to be implemented to maintain sufficient electricity supply for economic growth. The financial sector should incentivize investment in renewable energy to reduce Pakistan’s heavy reliance on oil imports.

Suggested Citation

  • Roubaud, David & Shahbaz, Muhammad, 2018. "Financial Development, Economic Growth, and Electricity Demand: A Sector Analysis of an Emerging Economy," MPRA Paper 87212, University Library of Munich, Germany, revised 06 Jun 2018.
    • Handle: RePEc:pra:mprapa:87212
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    2. Wang, Zhibao & Zhao, Nana & Wei, Wendong & Zhang, Qianwen, 2021. "A differentiated energy Kuznets curve: Evidence from mainland China," Energy, Elsevier, vol. 214(C).
    3. Chigozie Nelson Nkalu & Samuel Chinwero Ugwu & Fredrick O. Asogwa & Mwuese Patricia Kuma & Queen O. Onyeke, 2020. "Financial Development and Energy Consumption in Sub-Saharan Africa: Evidence From Panel Vector Error Correction Model," SAGE Open, , vol. 10(3), pages 21582440209, July.

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    Keywords

    Financial development; Electricity consumption; Economic growth; Energy policy; Bidirectional causality; Feedback effect; Electricity demand–supply gap; Non-renewable energy; Carbon Emissions; Pakistan;
    All these keywords.

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    • E0 - Macroeconomics and Monetary Economics - - General

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