Do Primary Energy Consumption and Economic Growth Drive Each Other in Pakistan? Implications for Energy Policy

Since energy supports the economic production activities and has been considered the engine of economic growth, it is of central importance to investigate their mutual relationships. We examine the causality between primary energy consumption and economic growth in Pakistan for the period of 1972 to 2015. We adopt a multivariate causality framework by adding primary energy consumption to labor and capital as input factors in the production model. The results of the Toda–Yamamoto Granger causality test confirm the existence of bidirectional causality between primary energy consumption and GDP, thereby validating the existence of the feedback hypothesis in Pakistan. The findings of the study call for the government to adopt policies for energy efficiency and expansion rather than energy conservation. Moreover, the renewable energy consumption share should be upscaled in the current energy mix to strengthen the economic activities by keeping the environmental sustainability objective as a top priority of the country.