Renewable and Non-renewable Energy Consumption and Economic Growth in Pakistan: A Disaggregated Analysis

Abstract

This study addresses the research question of how renewable and non-renewable energy consumption (EC) affects economic growth (GDP) in Pakistan over a period of 1972-2015. The study extends the basic production function having labor and capital as the mainstream variables by adding major energy sources of Pakistan. The results of Toda-Yamamoto Granger causality test confirm that no causality exists between GDP and labor force and bidirectional causality exists between GDP and gross capital formation. Moreover, the results confirm a unidirectional relationship (growth hypothesis) between hydroelectricity consumption (HEC) and nuclear energy consumption (NEC) and a bidirectional relationship (feedback hypothesis) between fossil fuel consumption (FFC) and GDP, respectively. The findings suggest for an efficient utilization of existing energy resources along with diversification and expansion of the renewable energy resources. The study recommends for the government policy to avoid energy conservation as it can hamper GDP growth in Pakistan.