Bulletin of Energy Economics http://www.tesdo.org/JournalDetail.aspx?Id=4 - 8 - Citation: Zeshan, M., Ahmad, V. (2013). Energy Consumption and Economic Growth in Pakistan. Bulletin of Energy Economics, 1(2), 8-20. Energy Consumption and Economic Growth in Pakistan Muhammad Zeshan* a , Vaqar Ahmed a a Sustainable Development Policy Institute, Islamabad, Pakistan Abstract The present study investigates the impact of energy consumption on real GDP, capital stock, and labor force using annual data for the period of 1971-2012. For empirical analysis, it employs the Structural Vector Auto-regression (SVAR) framework. The results reveal that economic growth increases the demand for labor force, but this rise is not sustainable. Same is the case for other factors such as capital stock and energy. We see that greater energy inputs are required to facilitate the new additions to capital stock. Further, an exogenous shock to capital stock and labor force stimulates the economic activity temporarily. Rising capital stock also demands greater units of labor as productive activity expands in the economy. The research work recommends the government to focus on its supply-line. A certain and affordable power supply is the need of time. Keywords: Energy, Growth, Pakistan JEL Classifications: Q4, O1 I. Introduction The causal linkages between energy consumption and economic growth are of great interest to policy makers owing to their significance in the policy making process. The first empirical support of the topic in hand was provided by Kraft and Kraft [1]. It finds a unidirectional causal relationship from economic growth to energy consumption. This research work motivated various other empirical studies to identify such causal links (Apergis and Payne [2], Abosedra et al. [3]). It is believed that energy consumption is an important ingredient of economic growth, it is the key to stimulating macroeconomic growth. If there is empirical support of growth hypothesis, restricting the energy consumption can adversely affect the growth process 1 . In contrast, if there is empirical support for the conservation hypothesis, the policy makers support the energy conservation policies 2 . Nonetheless, the existing empirical literature does not provide enough evidence to establish a universal causal relationship between energy consumption and economic growth (Karanfil [4]). Policy makers face various obstacles during the policy making process (Ozturk [5], Payne [6]). Karanfil [4] states that ignoring the potential variables in the empirical research produces misleading causality relationships. Hence, in order to minimize the potential variable gap, many empirical studies starting using other indicators such as labor employment, CO 2 emissions, exports, urbanization, financial development, and foreign direct investment (Shahbaz et al. [7], Shahbaz and Lean [8], Ciarreta and Zarraga [9], Chandran et al. [10], Lean and Smyth [11], Sadorsky [12] and Tang, [13]). I.I Pakistan’s Context The historical macro-economic scenario in Pakistan reveals a declining real GDP growth rate; the real GDP growth rate has been the highest during the 1980s and the lowest during 1990s. The fixed investment to GDP ratio remained stable during 1980s and 1990s, but it declined during 2000s. The Corresponding Author’s Email: [email protected]1 A unidirectional causality from energy consumption to the economic growth is known as the growth hypothesis. 2 A unidirectional causality from economic growth to the energy consumption is known as the conservation hypothesis.
Energy Consumption and Economic Growth in Pakistan Muhammed Zeshan Vaqar Ahmed Sustainable Development Policy Institute
Citation preview
1. Bulletin of Energy Economics
http://www.tesdo.org/JournalDetail.aspx?Id=4 Energy Consumption and
Economic Growth in Pakistan Muhammad Zeshan* a, Vaqar Ahmed a a
Sustainable Development Policy Institute, Islamabad, Pakistan
Abstract The present study investigates the impact of energy
consumption on real GDP, capital stock, and labor force using
annual data for the period of 1971-2012. For empirical analysis, it
employs the Structural Vector Auto-regression (SVAR) framework. The
results reveal that economic growth increases the demand for labor
force, but this rise is not sustainable. Same is the case for other
factors such as capital stock and energy. We see that greater
energy inputs are required to facilitate the new additions to
capital stock. Further, an exogenous shock to capital stock and
labor force stimulates the economic activity temporarily. Rising
capital stock also demands greater units of labor as productive
activity expands in the economy. The research work recommends the
government to focus on its supply-line. A certain and affordable
power supply is the need of time. Keywords: Energy, Growth,
Pakistan JEL Classifications: Q4, O1 I. Introduction The causal
linkages between energy consumption and economic growth are of
great interest to policy makers owing to their significance in the
policy making process. The first empirical support of the topic in
hand was provided by Kraft and Kraft [1]. It finds a unidirectional
causal relationship from economic growth to energy consumption.
This research work motivated various other empirical studies to
identify such causal links (Apergis and Payne [2], Abosedra et al.
[3]). It is believed that energy consumption is an important
ingredient of economic growth, it is the key to stimulating
macroeconomic growth. If there is empirical support of growth
hypothesis, restricting the energy consumption can adversely affect
the growth process1. In contrast, if there is empirical support for
the conservation hypothesis, the policy makers support the energy
conservation policies2. Nonetheless, the existing empirical
literature does not provide enough evidence to establish a
universal causal relationship between energy consumption and
economic growth (Karanfil [4]). Policy makers face various
obstacles during the policy making process (Ozturk [5], Payne [6]).
Karanfil [4] states that ignoring the potential variables in the
empirical research produces misleading causality relationships.
Hence, in order to minimize the potential variable gap, many
empirical studies starting using other indicators such as labor
employment, CO2 emissions, exports, urbanization, financial
development, and foreign direct investment (Shahbaz et al. [7],
Shahbaz and Lean [8], Ciarreta and Zarraga [9], Chandran et al.
[10], Lean and Smyth [11], Sadorsky [12] and Tang, [13]). I.I
Pakistans Context The historical macro-economic scenario in
Pakistan reveals a declining real GDP growth rate; the real GDP
growth rate has been the highest during the 1980s and the lowest
during 1990s. The fixed investment to GDP ratio remained stable
during 1980s and 1990s, but it declined during 2000s. The
Corresponding Authors Email: [email protected] 1 A unidirectional
causality from energy consumption to the economic growth is known
as the growth hypothesis. 2 A unidirectional causality from
economic growth to the energy consumption is known as the
conservation hypothesis. -8Citation: Zeshan, M., Ahmad, V. (2013).
Energy Consumption and Economic Growth in Pakistan. Bulletin of
Energy Economics, 1(2), 8-20.
2. Zeshan and Ahmad / Bulletin of Energy Economics, 2013, 1(2),
8-20. growth rate in labor force has been more negative during
1970s, 1980s and 2000s. However, the GDP deflator shows a rising
trend indicating the persistent inflationary trend. Finally, energy
intensity indicated by energy consumption to GDP ratio remains the
same during the period of analysis. Table-1: Economic Growth and
Energy Consumption Trends Time 1970s 1980s 1990s 2000s Real GDP
Growth 5.195 6.289 3.956 4.402 Fixed Investment to GDP ratio 16.382
18.720 18.559 17.677 Labor Force Growth -0.004 -0.706 3.088 -5.288
GDP Deflator 11.489 24.945 61.833 180.455 Energy Consumption to GDP
Ratio 0.002 0.002 0.002 0.002 Source: World Development Indicators
The growth rates of capital stock and real GDP portray a positive
relationship and same is the case with growth rates of labor force
and the real GDP. Nonetheless, the relationship is much stronger
between the capital stock and the real GDP. The analysis reveals
that initially, there was a weak relationship between labor force
and capital stock which improved in the later years. It is observed
that growth in labor force, capital stock and real GDP were at
their minimum level in the years 2010, 2001 nd 1971 respectively.
It was at the peak during the year 2007, 2006 and 1980
respectively. Their average growth rates for all of the period of
analysis are 2.90 percent, 0.89 percent and 2.26 percent
respectively. Decomposing it for each decade, it reveals that the
labor force was increasing rapidly during the 1970s while the
capital stock, real GDP and energy consumption were performing
their finest job in the 1980s, see Figure 1-3 and Table-2 for more
details3. 20 10 Figure-1 Capital Stock and Real GDP 0 -10
19711973197519771979198119831985198719891991199319951997199920012003200520072009
K G -20 Source: World Development Indicators and Authors
Calculations 10 8 Figure- 2 Labor Force and Real GDP 6 4 2 0 -2
19711973197519771979198119831985198719891991199319951997199920012003200520072009
L -4 G 3 In these figures K, G, L and ENC stand for capital stock,
economic growth, labor force and energy consumption respectively.
-9Citation: Zeshan, M., Ahmad, V. (2013). Energy Consumption and
Economic Growth in Pakistan. Bulletin of Energy Economics, 1(2),
8-20.
3. Zeshan and Ahmad / Bulletin of Energy Economics, 2013, 1(2),
8-20. Source: World Development Indicators Decade 1970s 1980s 1990s
2000s Table-2: Average Growth Rates Labor Force Capital Stock Real
GDP Energy Consumption 1.161 1.924 1.108 3.516 2.171 2.637 3.430
2.789 2.600 -0.663 1.405 1.476 3.378 0.320 2.254 1.052 Source:
World Development Indicators and Authors Calculations Up to 1980,
there is a weak relationship between the growth rates of energy
consumption and the real GDP which might be the result of policy
inconsistency. The subsequent periods illustrate the positive
association between the two variables. Same pattern is followed
between capital stock and the energy consumption, and between labor
force and energy consumption. The average growth in energy
consumption is 1.63 percent while decomposed analysis reveals that
it was the highest during 1980s and was at its minimum level during
2000s (see Figures 4-6 and Table-2 for details). 8 6 Figure-4 Real
GDP and Energy Consumption 4 2 0 -2 1971 1973 1975 1977 1979 1981
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
2009 -4 G ENC -6 Source: World Development Indicators 20 15
Figure-5 Capital Stock and Energy Consumption 10 5 0 -5 19711973
197519771979 198119831985 19871989 199119931995 199719992001
200320052007 2009 -10 -15 K -20 ENC Source: World Development
Indicators The previous discussion points out two important
messages. First, there is a lack of association among many
macroeconomic variables before 1980s. Second, growth in most of the
variable was at peak during 1980s. In 1970s, economist were quite
uncertain about the accuracy of policy making rules, they were - 10
Citation: Zeshan, M., Ahmad, V. (2013). Energy Consumption and
Economic Growth in Pakistan. Bulletin of Energy Economics, 1(2),
8-20.
4. Zeshan and Ahmad / Bulletin of Energy Economics, 2013, 1(2),
8-20. more concerned about the higher employment rate even if there
was some rise in inflation, the so called Phillips curve
hypothesis. 10 Figure-6 Labor Force and Energy Consumption 5 0
19711973197519771979198119831985198719891991199319951997199920012003200520072009
L -5 ENC Source: World Development Indicators The policy making
process was much volatile as it was subject to frequent changes.
Paul Volcker the governor of Federal Reserve at that time
endeavored to alter the policy objective, it initiated to target
the inflation rather than employment. This practice resulted in
some problems in initial stages but later on this policy rule
brought the historical decline in inflation. The central bank of
Pakistan also followed the same inflation targeting rule now.
Pakistan pursued a series of market-oriented adjustment programs to
reform its economic structure in 1980s. International financial
institutions, International Monetary Fund (IMF) and other bilateral
donors, provided the sufficient resources so that Pakistan could
enhance its macroeconomic stability through the promotion of
private sector and the development of export-led industries, and
improvement in the social sector indicators such as education,
health, population control measures. Mahmood et al. [14] argues
that economic performance of Pakistan was quite well until 1980s,
it might be the response of the shift from the nationalization in
the 1970s towards a more liberal, deregulate and denationalized
country. II. Review of Literature A number of studies are available
on the causal relationship between the energy consumption and
economic growth in the form of country specific. For the
organizational convenience, Table-3 presents review of literature
in two panels. Table-3 presents the analysis of the country
specific cases as follows: Table-3. Summary of Selected Empirical
Studies No. Author(s) Period Country Methodology Causality
Direction 1 Ang [15] 19711999 Malaysia Cointegration, VEC GDP EC 2
Soytas and Sari [16] 19602000 Turkey TodaYamamoto causality test
GDP EC 3 Ang [17] 19602000 France Cointegration, VECM EC GDP 4 Ho
and Siu [18] 19662002 Hong Kong Cointegration, VEC EC GDP 5 Lee
[19] 19542003 Taiwan Cointegration, VEC EC GDP 6 Lee and Chang [20]
19552003 Taiwan Granger causality test, Cointegration, VECM EC GDP
7 Jobert and Karanl [21] 19602003 Turkey Granger causality test GDP
EC 8 Zamani [22] 19672003 Iran Granger causality test,
Cointegration, VECM GDP EC 9 Lise and Van-Montfort [23] 19702003
Turkey Cointegration GDP EC 10 Belloumi [24] 19712004 Tunisia
Granger causality test, VECM EC GDP 11 Karanl [25] 19702005 Turkey
Granger causality test, Cointegration GDP EC 12 Halicioglu [26]
19602005 Turkey Granger causality test, ARDL, Co-integration GDP EC
13 Erdal et al. [27] 19702006 Turkey Granger causality test,
Cointegration EC GDP 14 Bowden and Payne [28] 19492006 USA
TodaYamamoto causality test EC GDP 15 Payne [29] 19492006 USA
TodaYamamoto causality test GDP EC 16 Zhang and Cheng [30] 19602007
China Granger causality test GDP EC Note: GDP EC indicates
causality running from economic growth to energy consumption, EC
GDP shows that energy consumption Granger causes economic growth,
EC GDP reports the feedback effect between energy consumption and
economic growth and GDP EC means no causality is found between both
variables. - 11 Citation: Zeshan, M., Ahmad, V. (2013). Energy
Consumption and Economic Growth in Pakistan. Bulletin of Energy
Economics, 1(2), 8-20.
5. Zeshan and Ahmad / Bulletin of Energy Economics, 2013, 1(2),
8-20. III. Methodology and Data The SAVR is the basic tool to gauge
the structural parameters in an econometric framework. The
importance of the structural estimates is evident as these
estimates are the most robust in a sense that they are not subject
to Lucas critique. Sims [31] encountered the Lucas critique by
assuming all variables endogenous in the econometric model. It gave
birth to reduced form VAR which could be estimated with the help of
the Ordinary Least Squares (OLS). The impulse responses (IRs) and
the variance decomposition portray the dynamic monuments of the
variables in the VAR system. The estimation of the structural VAR
was used to complete in two stages. In the first stage, the reduced
form VAR is estimated. In the second stage, the parameters of the
reduced form VAR are employed to construct the structural
parameters. However this practice results in identification
problem, as the structural parameters are greater in number than
the reduced form parameters. This problem is solved by imposing the
reasonable restrictions on the parameters for the identification
purpose. The structural parameters provide the information that can
be used in applied work and policy implications. Our basic model in
simple VAR framework is as follows: RX t 0 1 X t 1 t (1) Where ' Xt
' is the vector carrying all the time series variables. ' Xt1 '
represents the matrix having the lagged values of all the time
series variables. 'R' matrix stands for the coefficients that have
contemporaneous correlation with the variables. ' 0 ' and ' 1 '
indicates the vector of intercepts and the matrix of the lagged
coefficient of the time series variables respectively. Finally, ' t
' stands for the vector of pure innovations, white noised
disturbances. It becomes: X t 0 1 X t 1 et (2) where; 0 R 1 0 1 R 1
1 e0 R 1 t and E (eit ) 0 2 E (eit ) ; (i 1,2,....n) 2 E (e1t , e1t
1 ) E (e2t , ekt1 ) 0 E (e1t , e2t ) not necessarily zero.
Equation-2 specifies simple VAR in reduce form. It can be preceded
further for the structural VAR. If the right hand side of the
equation yields the identical series, Ordinary Least Square (OLS)
system of equations will provide the robust results. In contrast,
for any other composition of the series, it requires n2 n the
Seemingly Unrelated (SUR) structure for estimation. To obtain the
structural VAR, it requires the 2 restrictions to be imposed on the
system. We impose the following restrictions on the system, energy
- 12 Citation: Zeshan, M., Ahmad, V. (2013). Energy Consumption and
Economic Growth in Pakistan. Bulletin of Energy Economics, 1(2),
8-20.
6. Zeshan and Ahmad / Bulletin of Energy Economics, 2013, 1(2),
8-20. consumption cannot contemporaneously affect the real output
and other factors of production, capital stock is allowed to have a
contemporaneous correlation with labor force and energy consumption
and not with real GDP, while labor force is not allowed to have a
contemporaneous correlation with just the real GDP and the capital
stock. The present study employs four variables including energy
consumption, real GDP, capital stock, and labor force. It uses
annual data for the period 1971-2012, all the data is in real terms
denominated in millions with 2000 as base year. The World
Development Indicators and the International Financial Statistics
are the data sources. IV. Results and their Interpretation The SVAR
impulse responses for real GDP, capital stock, labor force and the
energy consumption are denoted by D(LG), D(LK), D(LL), and D(LENC)
respectively. All the impulse responses are based on 10year time
horizon. All the time series are in 1st difference because they are
integrated of order one as per Schwarz Bayesian (SBC) criteria.
Further, there is the absence of any cointegrating relationship
among them. A one standard deviation shock to real GDP results in
the higher demand for labor force, but this rise is not permanent
in nature. It tends to converse after the period of 2 years. Same
is the case with capital stock and energy consumption. This shock
also has the positive impact on capital stock and energy
consumption. Both of these variables rise because they are
complements in the production process, but this rise is also
temporary in nature and both revert to their mean after the period
of 2 years. One important finding is that higher level of energy is
required to facilitate the new capital stock. Hence, this specifies
the existence of growth hypothesis in Pakistan as energy
consumption is expected to rise due to rising capital stock. An
unexpected rise in the capital stock results in higher real GDP
growth which persists for the near two years. This rise in real GDP
is temporary and real GDP reverts back to its mean after some time.
On the other hand, there is contemporaneous rise in labor force in
response to this shock. More labor units are required to
accommodate this expansion in the business and to operate the new
machines. This rise is also temporary in nature and labor force
comes back to its mean in an early period as compared to real GDP.
It specifies that labor force converges quickly as compared to real
GDP. This fact is true because of the presence of inertia in real
GDP which delays its mean reversion. The mounting capital stock
also raises energy demand in the short-run. Although there is not
any noticeable ascend in the energy consumption in the initial
periods but demand for energy climbs with the lag of 3 years.
Decomposing the variance in real GDP reveals a significant evidence
of inertia in real GDP during the first year. Real GDP itself is
responsible for most of its variation while labor force produces
around 7.8 percent variation in real GDP. After the period of 4
years, most of the variation in real GDP is brought by labor force
whereas energy consumption and capital stock are responsible for
the least variation in real GDP. Decomposing the variance in labor
force reveals the presence of inertia in as most of the variation
in labor force is caused by labor force itself. Real GDP fetched
the 19.6 percent variation in labor force; capital stock carried
7.5 percent variation and energy consumption brought only 0.33
percent variation in the Labor Force. Our results are consistent
with the impulse responses, that labor force is unable to produce
any significant response in energy consumption and vice versa. The
composition of variation changes after 4 years, and capital stock
and energy consumption exchange their positions. A shock to real
GDP causes most of the variation in energy consumption while labor
force, energy consumption and capital stock follow in the same
sequence. Finally decomposing the variance in capital stock reveals
that most of the variation in capital stock is produced by capital
stock itself while real GDP produces the second highest; see
Table-4 for details in Appendix. V. Conclusion and Policy
Implications Across the globe, policy makers face various problems
while making a national policy on energy and same is the case in
Pakistan. However, the present study endeavors to establish an
empirical evidence of - 13 Citation: Zeshan, M., Ahmad, V. (2013).
Energy Consumption and Economic Growth in Pakistan. Bulletin of
Energy Economics, 1(2), 8-20.
7. Zeshan and Ahmad / Bulletin of Energy Economics, 2013, 1(2),
8-20. the causal relationships in energy sector of Pakistan. From
1971 to 1983, it finds deteriorating macroeconomic conditions and
lack of systematic relationship between energy consumption, GDP
growth, labor force and capital stock. However the situation
becomes somehow better during the preceding years. The present
study aims to discover causal relationship among the four
macroeconomic variables in Pakistan including energy consumption,
real GDP, capital stock, and labor force. It uses annual data for
the period of 1971-2012. The SVAR results reveal that economic
growth increases the demand for labor force, but this rise is not
sustainable. Same is the response of capital stock and energy
consumption to such a shock. It indicates that more energy inputs
are required to facilitate the new capital stock. It is clear that
the rise in energy consumption due to rising economic activity
needs energy conservation strategy in Pakistan. An exogenous shock
to capital stock stimulates economic activity temporarily. Same is
the response of labor force to such a shock, rising capital stock
demands more units of labor as production activity expands in
economy. The mounting capital stock also raises the energy demand
in short-run. Though the rise in energy consumption is very large,
but demand for energy rises up to the next three years. Our results
suggest that Pakistans production structure remains
energy-intensive. The government needs to devise means through
which affordable and certain supply of power can be ensured to the
various productive sectors of the economy. Pakistan loses around
PKR 150 billion per year in line losses and power theft. A
reduction in these preventable losses through prudent
accountability measures can provide some additional operating cost
for generating power. A deregulated energy sector would bring more
efficiency in the energy market. There is a need to urgently
attract private investment in power generation and distribution
companies. Currently the energy sector governance is very
fragmented and there is multiplicity of government departments
focusing on similar issues. There are 22 government departments
implementing the power policy. Consolidating these energy
departments into one single ministry or energy authority would
reduce transactions cost and facilitate greater coordination.
Pakistan has the highest reserves of coal and a potential of hydro
sector to produce 60000 MW. This potential can only be harnessed if
an enabling environment is provided for the foreign investment to
arrive in Pakistan. Reference: [1]. Kraft, J., Kraft, A. (1978). On
the relationship between energy and GNP. Journal of Energy
Development 3, 401-403. [2]. Apergis, N., Payne, J. E. (2009).
Energy consumption and economic growth in Central America: evidence
from a panel cointegration and error correction model. Energy
Economics 31, 211216. [3]. Abosedra, S., Dah, A., Ghosh, S. (2009).
Electricity consumption and economic growth, the case of Lebanon.
Applied Energy 86, 429-432. [4]. Karanfil, F. (2009). How many
times again will we examine the energy-income nexus using a limited
range of traditional econometric tools? Energy Policy 37,
1191-1194. [5]. Ozturk, I. (2010). A literature survey on
energy-growth nexus. Energy Policy 38, 340-349. [6]. Payne, J. E.
(2010). A survey of the electricity consumption-growth literature.
Applied Energy 87, 723-731. [7]. Shahbaz, M., Zeshan, M., Afza, T.
(2012). Is energy consumption effective to spur economic growth in
Pakistan? New evidence from bounds test to level relationships and
Granger causality tests. Economic Modelling 29, 2310-2319. [8].
Shahbaz, M., Lean, H. H. (2012b). The dynamics of electricity
consumption and economic growth: A revisit study of their causality
in Pakistan. Energy 39, 146-153. [9]. Ciarreta, A., Zarraga, A.
(2010). Economic growth-electricity consumption causality in 12
European countries: A dynamic panel data approach. Energy Policy
38, 3790-3796. [10]. Chandran, V.G.R., Sharma, S., Madhavan, K.
(2010). Electricity consumption-growth nexus: the case of Malaysia.
Energy Policy 38, 606-612. - 14 Citation: Zeshan, M., Ahmad, V.
(2013). Energy Consumption and Economic Growth in Pakistan.
Bulletin of Energy Economics, 1(2), 8-20.
8. Zeshan and Ahmad / Bulletin of Energy Economics, 2013, 1(2),
8-20. [11]. Lean, H.H., Smyth, R. (2010). Multivariate Granger
causality between electricity generation, exports, prices and GDP
in Malaysia. Energy 35, 3640-3648. [12]. Sadorsky, P. (2010). The
impact of financial development on energy consumption in emerging
economies. Energy Policy 38, 2528-2535. [13]. Tang, C. F. (2009).
Electricity consumption, income, foreign direct investment, and
population in Malaysia: New evidence from multivariate framework
analysis. Journal of Economic Studies 36, 371-382. [14]. Mahmood,
T., Rehman, H., Rauf S. A. (2008). Evaluation of macroeconomic
policies of Pakistan (1950 -2008). Journal of Political Studies 17,
57-75. [15]. Ang, J. B. (2008). Economic development, pollutant
emissions and energy consumption in Malaysia. Journal of Policy
Modeling 30, 271-278. [16]. Soytas, U., Sari, R. (2009). Energy
consumption, economic growth, and carbon emissions: challenges
faced by an EU candidate member. Ecological Economics 68,
1667-1675. [17]. Ang, J. B. (2007). CO2 emissions, energy
consumption, and output in France. Energy Policy 35, 4772-4778.
[18]. Ho, C-Y., Siu, K.W. (2007). A dynamic equilibrium of
electricity consumption and GDP in Hong Kong: an empirical
investigation. Energy Policy 35, 2507-2513. [19]. Lee, C. C.
(2005). Energy consumption and GDP in developing countries: a
cointegrated panel analysis. Energy Economics 27, 415-427. [20].
Lee, C. C., Chang, C. P. (2007a). The impact of energy consumption
on economic growth: evidence from linear and nonlinear models in
Taiwan. Energy 32, 2282-2294. [21]. Jobert, T., Karanl, F. (2007).
Sectoral energy consumption by source and economic growth in
Turkey. Energy Policy 35, 5447-5456. [22]. Zamani, M. (2007).
Energy Consumption and Economic Activities in Iran. Energy
Economics 29, 1135-1140. [23]. Lise, W., Van-Montfort, K. (2007).
Energy consumption and GDP in Turkey: is there a cointegration
relationship? Energy Economics 29, 1166-1178. [24]. Belloumi, M.
(2009). Energy consumption and GDP in Tunisia: cointegration and
causality analysis. Energy Policy 37, 2745-2753. [25]. Karanl, F.
(2008). Energy consumption and economic growth revisited: does the
size of unrecorded economy matter? Energy Policy 36, 3029-3035
[26]. Halicioglu, F. (2009). An econometric study of CO2 emissions,
energy consumption, income and foreign trade in Turkey. Energy
Policy 37, 1156-1164. [27]. Erdal, G., Erdal, H., Esengun, K.
(2008). The causality between energy consumption and economic
growth in Turkey. Energy Policy 36, 3838-3842. [28]. Bowden, N.,
Payne, J. E. (2009). The causal relationship between US energy
consumption and real output: a disaggregated analysis. Journal of
Policy Modeling 31, 180-188. [29]. Payne, J. E. (2009). On the
dynamics of energy consumption and output in the US. Applied Energy
86, 575-577. [30]. Zhang, X.P., Cheng, X. M. (2009). Energy
consumption, carbon emissions and economic growth in China.
Ecological Economics 68, 2706-2712. [31]. Sims, C.A., 1980.
Macroeconomics and reality. Econometrica 48, 1-48. - 15 Citation:
Zeshan, M., Ahmad, V. (2013). Energy Consumption and Economic
Growth in Pakistan. Bulletin of Energy Economics, 1(2), 8-20.
9. Zeshan and Ahmad / Bulletin of Energy Economics, 2013, 1(2),
8-20. Appendix: Figure-7 Response to Structural Innovation to real
GDP Response of D(LK) to Shock real GDP .4 .3 .2 .1 .0 -.1 -.2 -.3
1 2 3 4 5 6 7 8 9 10 Response of D(LL) to Shock real GDP .10 .05
.00 -.05 -.10 1 2 3 4 5 6 7 8 9 10 Response of D(LENC) to Shock
real GDP .15 .10 .05 .00 -.05 -.10 -.15 1 2 3 4 5 6 7 8 9 10 These
Impulse Responses are based on the 10 year time horizon. The dashed
red lines show the two standard deviation error band. - 16
Citation: Zeshan, M., Ahmad, V. (2013). Energy Consumption and
Economic Growth in Pakistan. Bulletin of Energy Economics, 1(2),
8-20.
10. Zeshan and Ahmad / Bulletin of Energy Economics, 2013,
1(2), 8-20. Figure-8 Response to Structural Innovation to Capital
Stock Response of D(LG) to Shock Capital Stock .06 .04 .02 .00 -.02
-.04 -.06 -.08 1 2 3 4 5 6 7 8 9 10 Response of D(LL) to Shock
Capital Stock .06 .04 .02 .00 -.02 -.04 -.06 1 2 3 4 5 6 7 8 9 10
Response of D(LENC) to Shock Capital Stock .08 .04 .00 -.04 -.08
-.12 1 2 3 4 5 6 7 8 9 10 These Impulse Responses are based on the
10 year time horizon. The dashed red lines show the two standard
deviation error band. - 17 Citation: Zeshan, M., Ahmad, V. (2013).
Energy Consumption and Economic Growth in Pakistan. Bulletin of
Energy Economics, 1(2), 8-20.
11. Zeshan and Ahmad / Bulletin of Energy Economics, 2013,
1(2), 8-20. Figure-9 Response to Structural Innovation to Labor
Force Response of D(LG) to Shock Labor Force .12 .08 .04 .00 -.04
-.08 -.12 1 2 3 4 5 6 7 8 9 10 Response of D(LK) to Shock Labor
Force .3 .2 .1 .0 -.1 -.2 -.3 -.4 1 2 3 4 5 6 7 8 9 10 Response of
D(LENC) to Shock Labor Force .20 .15 .10 .05 .00 -.05 -.10 -.15 1 2
3 4 5 6 7 8 9 10 These Impulse Responses are based on the 10 year
time horizon. The dashed red lines show the two standard deviation
error band. - 18 Citation: Zeshan, M., Ahmad, V. (2013). Energy
Consumption and Economic Growth in Pakistan. Bulletin of Energy
Economics, 1(2), 8-20.
12. Zeshan and Ahmad / Bulletin of Energy Economics, 2013,
1(2), 8-20. Figure-10 Response to Structural Innovation to Energy
Comsumption Response of D(LG) to Shock Energy Comsumption .04 .00
-.04 -.08 1 2 3 4 5 6 7 8 9 10 Response of D(LK) to Shock Energy
Comsumption .3 .2 .1 .0 -.1 -.2 1 2 3 4 5 6 7 8 9 10 Response of
D(LL) to Shock Energy Comsumption .06 .04 .02 .00 -.02 -.04 -.06 1
2 3 4 5 6 7 8 9 10 These Impulse Responses are based on the 10 year
time horizon. The dashed red lines show the two standard deviation
error band. - 19 Citation: Zeshan, M., Ahmad, V. (2013). Energy
Consumption and Economic Growth in Pakistan. Bulletin of Energy
Economics, 1(2), 8-20.
13. Zeshan and Ahmad / Bulletin of Energy Economics, 2013,
1(2), 8-20. Table-4. Variance Decomposition Approach Panel: A
Period real GDP Shock1 Shock2 Shock3 Shock4 Shock1 Labor Force
Shock2 Shock3 Shock4 1 100.00 0.00 0.00 0.00 9.77 5.59 84.64 0.00 2
92.11 0.01 7.88 0.00 19.67 7.56 72.44 0.33 3 54.91 5.13 14.24 25.72
25.92 6.59 66.49 1.00 4 50.10 5.15 12.89 31.87 24.08 6.95 67.95
1.01 5 31.99 4.31 38.74 24.97 22.17 6.01 59.75 12.07 Shock1-4
stands for real GDP, Capital Stock, Labor Force and Energy
Consumption respectively. Panel: B Period Shock1 Energy Consumption
Shock2 Shock3 Shock4 Shock1 Capital Stock Shock2 Shock3 Shock4 1
0.20 3.92 4.45 91.43 36.57 63.43 0.00 0.00 2 40.46 1.34 38.77 19.43
52.21 45.65 0.58 1.57 3 35.47 12.27 31.61 20.65 49.24 38.17 7.84
4.75 4 34.02 10.10 26.17 29.71 48.84 36.98 9.92 4.25 5 38.36 6.04
37.64 17.96 37.19 28.49 7.12 27.19 Shock1-4 stands for real GDP,
Capital Stock, Labor Force and Energy Consumption respectively. -
20 Citation: Zeshan, M., Ahmad, V. (2013). Energy Consumption and
Economic Growth in Pakistan. Bulletin of Energy Economics, 1(2),
8-20.