Energy Consumption, Manufacturing Output and Economic Growth in Pakistan: An ARDL Bound Testing Approach

Abstract

The study investigates the short and long run relationship between energy consumption (DEN), manufacturing output (MG) and economic growth (EG), in Pakistan by applying ARDL bound testing approach. The time series employed is covering the period from 1981 to 2014. With Error Correction Model, our findings exhibit that both energy consumption and manufacturing output has established a positive long run relationship with economic growth. Moreover, by using the granger causality, the results provide the unidirectional causal relationship between manufacturing output and economic growth whereas, a bidirectional causality has been found between energy consumption and manufacturing output. The study implicates that Pakistan needs to enhance the capacity of the energy sector for the efficacy of the manufacturing productivity leading to economic growth. Since, Pakistan is facing an energy shortfall it is necessary for the policy makers to take restructuring of energy sector into account, including capacity enhancement while considering environment and eco-friendly renewable energy sources.

Keywords: Manufacturing output, energy consumption, economic growth, ARDL bound testing, Granger causality.

DOI: 10.7176/JESD/10-6-03

Publication date:March 31^st 2019