Do natural resources determine energy consumption in Pakistan? The importance of quantile asymmetries

Unlike prior studies, this paper examines the nonlinear and distributional asymmetric effects of natural resources abundance on energy consumption in Pakistan controlling for the effects of economic growth, oil prices, exports diversification and economic complexity. Using quarterly data over the period 1972–2018, we employed several advanced econometric techniques such as quantile unit root test developed by Köenker and Xiao (2004) is used to check the stationarity of the variables at different quantiles. Afterwards, the quantile ARDL model is employed to account for the distributional asymmetry between energy consumption and its determinants. Lastly, we apply quantile causality test of Troster (2018) in order to examine causality at different quantiles. The empirical results show that speed of adjustment parameter is significantly negative at the low quantiles (0.05 to 0.30) ensuring thus the stability of ARDL model at these quantiles. Furthermore, natural resources have a positive contemporaneous effect on energy consumption and a negative one-period lagged effect, leading to a positive cumulative short-run effect of natural resources on energy consumption. Similarly, economic growth and oil prices add to energy consumption. Export diversification does not determine energy consumption in the short-run but economic complexity influences energy consumption contemporaneously and negatively at all quantiles but the extreme ones. The causality analysis reveals the presence of causal relation running from natural resources, economic growth and oil prices, to energy consumption at all quantiles except at the two highest quantiles (0.90 and 0.95). Energy consumption is cause of exports diversification and economic complexity. This empirical evidence opens new insights for policy makers to use natural resources as economic tool to maintain energy demand for long run economic growth.