Impact of Energy Consumption on Economic Growth, Foreign Direct Investment and Environmental Degradation: Evidence from Pakistan

Abstract

Economic growth is a process that is not possible without a lot of energy consumption. Energy is considered as the life blood of an economy however, the energy consumption is also an important factor responsible for degrading the natural environment of the world. The present empirical work is an effort to empirically analyze the association of energy use (kg of oil equivalent per capita) with economic growth (GDP per capita annual growth), foreign direct investment (FDI net inflow as percentage of GDP), and environmental degradation (CO2 emissions, metric tons per capita) in case of Pakistan. The work is based on time series data for the years 1975 to 2018. Canonical cointegrating regression (CCR) method is used for the estimation of the coefficient of the  parameters. The results demonstrate that  energy use has  significant positive association with  FDI, economic growth,  and CO2 emissions. The empirical results recommend that policy makers in Pakistan require to work on policies regarding sustainable development and efficient use of energy as without achieving the efficiency in energy use, the desirable growth of the economy without environmental degradation cannot be achieved.