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Causality between Energy Consumption and Economic Growth: The Case of Pakistan

Author

Listed:
  • Qazi Muhammad Adnan Hye

    (University of Karachi, Pakistan.)

  • Sana Riaz

    (University of Karachi, Pakistan.)

Abstract

This study seeks to determine the direction of causality between energy consumption (EC) and economic growth (EG), using annual data from 1971 to 2007. In our empirical analysis, we implement a bounds-testing approach to co-integration and an augmented form of the Granger causality test to identify the direction of the relationship between these variables both in the short and long run. Our findings suggest bidirectional causality between EG and EC in the short run; in the long run we find unidirectional causality from EG to EC. EC does not lead to EG in the long run because higher energy prices (oil prices) increase the cost of business, leading to a negative effect on EG. Additionally, when energy prices fluctuate, they create uncertainty that also affects economic growth. The study recommends direct investment in local energy resources.

Suggested Citation

  • Qazi Muhammad Adnan Hye & Sana Riaz, 2008. "Causality between Energy Consumption and Economic Growth: The Case of Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 13(2), pages 45-58, Jul-Dec.
    • Handle: RePEc:lje:journl:v:13:y:2008:i:2:p:45-58
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Economic Growth; Energy Consumption; Pakistan.;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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