By applying an ARDL bounds testing approach and causality test to investigate the electricity consumption and production with economic growth. Empirical evidence from Pakistan

DOIhttps://doi.org/10.1108/WJSTSD-08-2019-0054
Publication Date10 December 2019
Date10 December 2019
Pages182-199
AuthorAbdul Rehman,Muhammad Irfan,Sehresh Hena,Abbas Ali Chandio
SubjectPublic policy & environmental management,Environmental technology & innovation
By applying an ARDL bounds
testing approach and causality
test to investigate the electricity
consumption and production with
economic growth
Empirical evidence from Pakistan
Abdul Rehman
Research Center of Agricultural-Rural-Peasants, Anhui University, Hefei, China
Muhammad Irfan
Beijing Key Laboratory of New Energy and Low Carbon Development,
School of Economics and Management,
North China Electric Power University, Baoding, China
Sehresh Hena
College of Economics and Management,
Anhui Agricultural University, Hefei, China, and
Abbas Ali Chandio
Sichuan Agricultural University Chengdu Campus, Chengdu, China
Abstract
Purpose The purpose of this paper is to explore and investigate the electricity consumption and production
and its linkage to economic growth in Pakistan.
Design/methodology/approach The authors used an augmented DickeyFuller unit root test to check
the stationarity of the variables, while an autoregressive distributed lag (ARDL) bounds testing approach and
causality test were applied to investigate the variables long-term association with the economic growth.
Findings The study results show that electricity consumption in the agriculture, commercial and industrial
sector has significant association with economic growth, while electricity consumption in the household and
street lights demonstrate a non-significant association with the economic growth. Furthermore, results also
exposed that electricity production from coal, hydroelectric, natural gas, nuclear and oil sources have
significant association with the economic growth of Pakistan.
Originality/value This study made a contribution to the literature regarding electricity consumption and
production with economic growth in Pakistan by using an ARDL bounds testing approach and causality test.
This study provides a guideline to the government of Pakistan that possible steps are needed to improve the
electricity production and supply to fulfill the country demand.
Keywords Pakistan, Economic growth, Electricity consumption, Electricity production, Industrial sector,
Nuclear sources
Paper type Research paper
1. Introduction
The energy demand and consumption in the world has a sustained and stable growth in the
past few decades,and developing economies and emergingmarkets are playing dominantrole
to boost economic growth and development. Urbanization and fast growing population has
become the major component in the growth of world energy consumption. However, the
consumptionof large amount of non-renewableenergy and growth in theenergy consumption
has fetched many serious impacts on the environment (Suganthi and Samuel, 2012;
World Journal of Science,
Technology and Sustainable
Development
Vol. 17 No. 2, 2020
pp. 182-199
© Emerald PublishingLimited
2042-5945
DOI 10.1108/WJSTSD-08-2019-0054
Received 6 August 2019
Revised 1 October 2019
20 October 2019
Accepted 12 November 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2042-5945.htm
182
WJSTSD
17,2
Panwar et al., 2011; Ouedraogo, 2013; Liu and Li, 2011). The energy consumption
pattern, technology, economic structure and human living standard are different from the
developed economies, and distinctive natural resources of Pakistan deliver inexpensive
sources of energy which includes coal, hydropower, solar energy and wind power
(Farooq and Kumar, 2013). In developing countries, progress in the economic sector mainly
reliant on electricity and production in the manufacturing industries decays due to shortages
of electricity, which in turn undermine the economy. Economic growth is directly associated
with the consumption of electricity consumption which is a key component to the labor
and capital, and considered as a factor of production (Costantini and Martini, 2010;
Wolde-Rufael, 201 4).
In the modern global economy, electricity is seen as a multi-faceted development vehicle
characterized by the consolidation and maintenance of human welfare, investment,
productivity, exports and imports. These factors in turn have accelerated the trend of
national economic growth and prosperity. Others believe that electricity consumption is
conducive to sustainable economic growth and ensuring the continuity of national
prosperity, regardless of the causality direction. Therefore, certain damages caused by the
recent financial crisis, many countries are increasingly demanding significant development
in the sustainable economic growth, which is gradually becoming a competitive challenge.
In addition, it is necessary to attract and sustain large international investment flows and
other international investment mechanisms are the foundation of each country (Rafindadi
and Ozturk, 2016; Fukushige and Yamawaki, 2015; Karanfil and Li, 2015; Kim, 2015).
The association amid economic growth, energy consumption and CO
2
emission can be
uttered through energy efficiency which has linkage to energy input and economic growth
output. It is impacted by the development stage of economy and society, change in the
energy consumption, adjustment of economic structure as well as the improvement and
development in the living standard of people (Shiu and Lam, 2004; Ozturk, 2010; Zhang et al.,
2017; Zhang and Cheng, 2009; Rehman, Ozturk and Zhang, 2019). However, electricity
production and its links with economic growth and environmental circumstances have
become the key focus of attention around the world. Some countries use petroleum-related
products in order to produce electricity which upsurge their need on energy (Mbarek et al.,
2015; Chen et al., 2007; Payne, 2010a, b; Rehman, Rauf, Ahmad, Chandio and Deyuan, 2019).
Pakistan is a low-income country that has faced most serious energy crisis in the past
few years, and its energy demand has increased with the growth of economy and
population. Recycling of debt, fragile financial conditions of energy supply companies,
dependence on natural gas and oil, declining natural gas production, low consumption of
cheap hydropower and coal resources and energy shortages caused by unrestricted major
restrictions on power generation (Pakistan Energy Year Book, 2009). Increasing oil prices
have led to increase production costs and inflation, which has a negative impact on
investment and purchasing power. Electricity supply is an essential element of industrial
production, and different countries are facing power shortages which are unable to sustain
economic growth. As compared with oil prices, economic growth in developing countries
with industrial infrastructure has a high correlation with electricity consumption. Due to
power shortages, the production process may also slow down (Das et al., 2012; Damette and
Seghir, 2013; Timilsina, 2015; Shahbaz and Ali, 2016).
Energy is an essential measure to promote economic growth of any country and
development, and highly versatile system can stimulate energy performance of almost all
sectors of the economy. The country is facing serious problems related to energy production
and supply, and electricity demand is increasing with the rapid growth of population and
electricity prices like other countries (Mohamed and Bodger, 2005; Rehman and Deyuan,
2018a, b; Rehman, Ozturk and Zhang, 2019; Rehman, Rauf, Ahmad, Chandio and Deyuan,
2019). The electricity production from fossil fuel demonstrates the independent power plants
183
ARDL bounds
testing
approach

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