New evidence from Pakistan utilizing asymmetric analysis on the link between energy use and GDP growth

Abstract

The current body of work on the relationship between energy consumption, agricultural output, capital investment, and economic expansion in Pakistan is enhanced by the findings of this study, which offer an important contribution to that literature. In this study, the application of the Non-linear Auto regressive Distributed Lag (NARDL) model was expanded to include time series data spanning the years 1971 to 2014. The findings of the NARDL test offer empirical evidence indicating the presence of unequal co-integration among the variables in the data set. It has been demonstrated that there is asymmetric causality between positive shocks in energy consumption and economic development. Specifically, it has been found that energy consumption precedes and influences economic growth. A feedback effect can be produced when there is a reciprocal relationship between agricultural and economic growth, as can happen when there is a positive disruption. The relationship between capital and economic growth follows a unidirectional pattern, which means that disturbances of either a positive or negative nature might have an effect on the relationship. In a similar vein, the use of a Granger causality test indicates the presence of bidirectional causality between energy consumption, agriculture, capital, and economic growth. This is the case because the test finds that there is a correlation between the four factors. The authors of this paper argue that decision-makers should reconsider the policies that are currently in place for the agricultural and energy industries. It recommends the attraction of foreign investors for the development of new hydroelectric facilities as a method to meet two major objectives: securing the provision of energy to the industrial sector and mitigating water shortages. As a means to address these two key objectives, it advises the attraction of foreign investors for the establishment of new hydroelectric facilities.