Contribution of Financial Development in Electricity-Growth Nexus in Pakistan

Abstract

The perseverance of the paper is to scrutinize the causal connection within economic uplift and electricity consumption in Pakistan. There is a need to incorporate a third variable as a financial development in traditional electricity-growth model by creating a tri-variate causality framework; so the problem of omitted variables bias in this nexus has been eradicated. The application of cointegration along with vector error correction model in our study validates a uni-variate an extensive rise in causality in succession from electricity consumption towards financial development and economic development. These results spring strength to argument according to that Pakistan is a state which depends on energy. Every set back in the power supply retards the development process and in consequence the economy moves towards evil of backwardness. In addition, results show that financial development as well as economic development in Pakistan raises the electricity consumption, and the outcomes are applicable to all regardless of the long run causality observed in Pakistan. Hence the study commends geared headed for the expansion of power sector through FDI influx and Credit plans in order to handle the rising electricity call utilized by rapid industrialization and growth in the economy.

Keywords

• electricity consumption; foreign direct investment; gross domestic product; financial development