ENERGY CONSUMPTION AND SECTORAL ECONOMIC GROWTH IN PAKISTAN: EVIDENCE FROM DISAGGREGATED SECTORAL DATA

Abstract

This paper looks into the sectoral effect of energy consumption on the economic growth in Pakistan by considering the agriculture, industrial and services sectors between 1980 and 2023. Through an augmented Cobb Douglas production formulation, the analysis uses capital stock, labor force participation, and sector-specific energy consumption as well as other variables. The empirical study is undertaken with the Autoregressive Distributed Lag (ARDL) methodology in order to embrace both the short run and the long run effect. The results establish the existence of long run association between energy use and sectoral output. The findings however indicate that there is a positive and statistically significant effect of energy consumption (EC) on economic growth (EG) in industrial and agriculture sector, and a negative and statistically significant effect of energy consumption on economic growth in services sector, which depicts structural inefficiencies, inefficient energy supply, and high energy prices in Pakistan. Capital formation and labor input play a positive role in increasing the sectoral growth but are limited by the shortage of energy. The paper highlights the need to have sector-specific energy policies, enhanced energy efficiency, and institutional reforms in order to facilitate sustainable and inclusive economic growth in Pakistan.