Oil consumption and economic growth: Evidence from Pakistan

This study attempts to look into the causal relationship between oil consumption and economic growth in Pakistan where oil consumption and real gross domestic product (GDP) have increased rapidly in recent years. To this end, the study employs annual data covering the period 1965-2015. Tests for unit roots, co-integration, and Granger causality based on the error-correction models (ECMs) are presented. The overall results support the existence of bidirectional causality between oil consumption and economic growth in Pakistan. This means that an increase in oil consumption directly affects economic growth. Thus, in order not to cause an adverse effect on economic growth, Pakistan should endeavor to overcome the constraints on oil consumption. Moreover, it appears that economic growth induces increased oil consumption.