The dynamics of electricity consumption and economic growth: A revisit study of their causality in Pakistan

TLDR: In this paper, the relationship between electricity consumption and economic growth in Pakistan by controlling and investigating the effects of two major production factors (i.e., capital and labor) was revisited and the empirical evidence confirmed the cointegration among the variables and indicates that electricity consumption has a positive effect on economic growth.

About: This article is published in Energy.The article was published on 2012-03-01 and is currently open access. It has received 229 citations till now. The article focuses on the topics: Consumption (economics) & Electricity.

Figures

Table 5: Results of Granger Causality

Table 3: Results of Johansen Cointegration Test

Table 4: Long and Short Runs Results

Table 1: Saikkonen and Lütkepohl Unit Root Test Results

Table 2: Results of Bounds Testing to Cointegration

Figure 1: Plot of Cumulative Sum of Recursive Residuals

Frequently asked questions

Q1. What have the authors contributed in "The dynamics of electricity consumption and economic growth: a revisit study of their causality in pakistan" ?

This study revisits the relationship between electricity consumption and economic growth in Pakistan by controlling and investigating the effects of two major production factors capital and labor. The findings suggests that adoption of electricity conservation policies to conserve energy resources may unwittingly decline growth and the lower growth rate will in turn further decrease the demand for electricity. 

Q2. What are the two types of studies?

Empirical studies on the causality between electricity consumption and economic growth can be divided into cross country studies and country specific studies. 

Q3. What is the effect of labor on economic growth?

The short-run coefficients also show that electricity consumption and capital have a significant positive impact on economic growth but the positive impact of labor is insignificant in the short-run. 

Q4. What are the standard unit root tests?

The standard unit root tests such as ADF and PP may provide inefficient and biased results when the shift is prevailed in the time series. 

Q5. What countries did Yoo and Kwak find unidirectional causality from electricity consumption to economic?

In OPEC economies, Squalli [15] found unidirectional causality from electricity consumption to economic growth in Indonesia, Nigeria, UAE and Venezuela while economic growth Granger causes electricity consumption in Algeria, Iraq, Kuwait and Libya. 

Q6. What countries did Yoo and Kwak report that electricity consumption causes economic growth?

Yoo and Kwak [19] reported that electricity consumption Granger causes economic growth in Argentina, Brazil, Chile, Columbia and Ecuador; while electricity consumption and economic growth Granger cause each other in Venezuela. 

Q7. What is the VECM error correction term?

Given the existence of long-run relationship among variables, an error correction term is added in the framework of VECM as follows: tttttttttiiiiiiiiiiiiiiiipittttECTLKECYeeeeddddccccbbbbLaaaaLKECYL432114443424134333231242322211413121114321][)1()1( (8)where (1 )L is the difference operator, 1tECT is the lagged error correction term and 1 2 3 4, , and t t t t are the iid error terms. 

Q8. What is the causal relationship between energy consumption and economic growth in Pakistan?

In the case of Pakistan, unidirectional causal relation is found running from coal consumption to economic growth, also from economic growth to electricity consumption and also towards total energy consumption. 

Q9. What countries did Narayan and Prasad report unidirectional causality?

For OECD countries, Narayan and Prasad [16] showed unidirectional causal relation from electricity consumption to economic growth for Australia, the Czech Republic, Iceland, Italy, Portugal and the Slovak Republic, but the reverse case in Finland, Hungry and the Netherlands while the feedback hypothesis was validated in Korea and the UK.