Determinants of Economic indicators for Electricity Consumption in Pakistan

Abstract: Economic Growth is often cited as a driving force behind electricity consumption. Pakistan has an under-developed Electricity Sector, and this restrains the economic activities in the country. Load-shedding, which are power outages scheduled by the government, are a frequent occurrence, and these outages affect all sectors of the Pakistani economy. The Energy Crisis (based on electricity shortage), Pakistan faces have serious implications for its economic growth. This study examines the relationship between the consumption of electricity and growth in economic variables such as agriculture, manufacturing and service sectors. It also looks at how increase in population and urbanization quantify the pressure on the electricity resources of Pakistan. The Empirical Approach is based on VAR-model estimation for short-run analysis and Vector Error Correction Model for long-run analysis; from period 1960 to 2009. The empirical results suggest that in the short-run agriculture growth significantly and positivity effects energy consumption. In the long-run GDP growth leads to increase in electricity consumption; this affirms with the previous studies. Services sector growth is found to be the driving-force for electricity consumption, and in demographical indicators urbanization growth and population growth have great impact on the growth of electricity consumption.