Energy use for economic growth: Cointegration and causality analysis from the agriculture sector of Pakistan

Abstract

Economic growth is energy-intensive. Nonetheless, in developing countries like Pakistan, the present energy use in agriculture is not strictly commensurate with energy consumption trends in developed countries. Sharp increases in energy prices have serious implications for the agrarian economy of Pakistan. This study implies the Johansen's co-integration approach and Granger causality to check the degree of integration and the direction of causality among different economic time series for the period 1972-2005. It is found that all the series are first-differenced stationary and there exists a long-run equilibrium relationship among concerned variables. The Granger causality test result suggests that unidirectional causality is running from GDP to oil consumption; electricity to GDP; while neutrality exists for gas and GDP. The implications of this study are that any future growth in the agriculture sector will increase the demand for oil, and if government improves the infrastructure and subsidises rural and agricultural electricity, it would significantly enhance agricultural share of GDP. © The Pakistan Development Review.