Causal Nexus Among the Economic Growth, Energy Consumption and Environmental Degradation in Pakistan

Abstract

The study objective is to assess the reciprocal relationship between energy consumption and economic growth in Pakistan, analyzing how each factor influences the other. Additionally, it seeks to investigate the combined impact of energy consumption and economic growth on environmental degradation within the country. The study modifies the Stern, Solow growth models, and Kuznets curve to incorporate new variables and examine their interrelationship with economic growth, energy consumption, and environmental degradation in Pakistan. Time series secondary data covering the period from 1975 to 2016 will be collected for analysis. The model explains the influence of energy consumption, foreign direct investment, gross fixed capital formation, and public debt on GDP. The empirical findings indicate a positive relationship between energy consumption and economic growth in Pakistan, with evidence of bidirectional causality in both short and long terms, supporting the feedback hypothesis. This underscores the intricate dynamics among economic growth, energy consumption, and industrial production, emphasizing the necessity of sustainable energy strategies to reconcile economic advancement with environmental concerns. Achieving this balance necessitates tailored policies and practices by governments and industries, crucial for ensuring effective and sustainable development outcomes in terms of renewable energy, environmentally friendly transportation, population and urban development strategies.

Keywords:  Gross Domestic Product, Energy Consumption, Environmental Degradation, Energy Price, Industrialization.