Skip to main content

Advertisement

SpringerLink
Log in

Investigating the long-run interaction between electricity consumption, foreign investment, and economic progress in Pakistan: evidence from VECM approach

  • Research Article
  • Published:
Environmental Science and Pollution Research Aims and scope Submit manuscript

Abstract

In this study, we attempt to investigate the relationship between electricity consumption, foreign direct investment (FDI) and economic progress in Pakistan during the period from 1997 to 2017. We applied the unit root tests to cointegration approach with the vector error correction model (VECM) approach. We also authenticated the robustness of the outcomes with the help of the regression methods. The main findings indicated that variables are cointegrated in the long-run and the VECM approach verified long-run causal links among the variables. The short-run causality is running from electricity consumption and economic development to FDI. The results remained uniform under the fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS), and the autoregressive distributed lag (ARDL) estimations. Correspondingly, these three methods ratified that there is a significant long-run linkage between electricity consumption and the economic development of Pakistan. Additionally, the diagnostic assessments fixed that results are free from correlations and models are stable. Thus, based on these results, electricity generation and consumption, as well as FDI, is crucial for the economic progress of Pakistan. The priority should be given to promote the optimum use of available resources to generate energy, and FDI in the energy sector should be attracted through various incentives to support the economic advancement of Pakistan. Renewable energy resources are recyclable springs that can cut the intensity of carbon emissions and encourage to the promising magnitude of FDI and also certify sustainable and economic progression of Pakistan.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7

Similar content being viewed by others

References

  • Akbostanci E, Turutasik S, Tunc GI (2009) The relationship between income and environment in Turkey : is there an environmental Kuznets curve? Energy Policy 37:861–867

    Google Scholar 

  • Alam A (2013) Electric power consumption, foreign direct investment and economic growth: a comparative study of India and Pakistan. World J Sci 10:55–65

    Google Scholar 

  • Alam S, Butt MS (2002) Causality between energy and economic growth in Pakistan: an application of cointegration and error correction modeling techniques. Pac Asian J Energy 12:151–165

    Google Scholar 

  • Almulali U, Sheauting L (2014) Econometric analysis of trade, exports, imports, energy consumption and CO2 emission in six regions. Renew Sustain Energy Rev 33:484–498

    Google Scholar 

  • Amal M (2016) Foreign direct investment in Brazil: post-crisis economic development in emerging markets. Academic Press, San Diego

    Google Scholar 

  • Aman MM, Jasmon GB, Ghufran A, Bakar AHA, Mokhlis H (2013) Investigating possible wind energy potential to meet the power shortage in Karachi. Renew Sustain Energy Rev 18:528–542

    Google Scholar 

  • Anwar S, Nguyen LP (2010) Foreign direct investment and economic growth in Vietnam. Asia Pac Bus Rev 16:183–202

    Google Scholar 

  • Apergis N, Payne JE (2009) CO2 emissions, energy usage, and output in Central America. Energy Policy 37:3282–3286

    Google Scholar 

  • Aqeel A, Butt MS (2001) The relationship between energy consumption and economic growth in Pakistan. Asia Pac Dev J 8:101–110

    Google Scholar 

  • Aqeel A, Nishat M (2004) The determinants of foreign direct investment in Pakistan. Pak Dev Rev 43:651–664

    Google Scholar 

  • Baloch MH, Kaloi GS, Memon ZA (2016) Current scenario of the wind energy in Pakistan challenges and future perspectives: a case study. Energy Rep 2:201–210

    Google Scholar 

  • Bekhet HA, Alsmadi RW (2015) Determinants of Jordanian foreign direct investment inflows: bounds testing approach. Econ Model 46:27–35

    Google Scholar 

  • Boateng A, Hua X, Nisar S, Wu J (2015) Examining the determinants of inward FDI: evidence from Norway. Econ Model 47:118–127

    Google Scholar 

  • Chandio AA, Jiang Y, Rehman A (2019a) Energy consumption and agricultural economic growth in Pakistan: is there a nexus? Int J Energy Sect Manage

  • Chandio AA, Rauf A, Jiang Y, Ozturk I, Ahmad F (2019b) Cointegration and causality analysis of dynamic linkage between industrial energy consumption and economic growth in Pakistan. Sustainability 11:4546

    Google Scholar 

  • Dey SR (2019) Electricity consumption and income nexus: evidence from Bangladesh. Int J Energy Sect Manage 13:1020–1037

    Google Scholar 

  • Dey SR, Tareque M (2019) Electricity consumption and GDP nexus in Bangladesh: a time series investigation. J Asian Bus Econ Stud 27(1):35–48. https://doi.org/10.1108/JABES-04-2019-0029

  • ET (2008). Energy tribune. Pakistan’s ongoing electricity shortage (Accessed 18 Nov 2011 from /http://www.energytribune.com/articles.cfm?aid=864S)

  • Ferguson R, Wilkinson W, Hil R (2000) Electricity use and economic development. Energy Policy, 28(13),923–934

  • Foon Tang C (2009) Electricity consumption, income, foreign direct investment, and population in Malaysia: new evidence from multivariate framework analysis. J Econ Stud 36:371–382

    Google Scholar 

  • Giannias DA, Liargovas P, Alexandrovich CY (2003) Economic growth and the environment: the European Union case. J Dev Areas 37:1–11

    Google Scholar 

  • GOP, (2013). Government of Pakistan, (2013). National Power Policy Pakistan

  • GOP, (2017). Pakistan economic survey 2016–2017; Ministry of Finance, Government of Pakistan: Islamabad, Pakistan

  • GOP, (2018). Pakistan economic survey 2017–2018; Ministry of Finance, Government of Pakistan: Islamabad, Pakistan

  • Hakro AN, Ghumro IA (2011) Determinants of foreign direct investment flows to Pakistan. J Dev Areas 44:217–242

    Google Scholar 

  • Hassan MS, Tahir MN, Wajid A, Mahmood H, Farooq A (2018) Natural gas consumption and economic growth in Pakistan: production function approach. Glob Bus Rev 19:297–310

    Google Scholar 

  • Ho C, Siu KW (2007) A dynamic equilibrium of electricity consumption and GDP in Hong Kong: an empirical investigation. Energy Policy 35:2507–2513

    Google Scholar 

  • Hossain MS, Saeki C (2012) A dynamic causality study between electricity consumption and economic growth for global panel: evidence from 76 countries. Asian Econ Financ Rev 2:1–13

    Google Scholar 

  • Hye QMA, Riaz S (2008) Causality between energy consumption and economic growth: the case of Pakistan. Lahore J Econ 13:45–58

    Google Scholar 

  • Islam SMF, Shahbaz M, Ahmed A, Alam MM (2013) Financial development and energy consumption nexus in Malaysia: a multivariate time series analysis. Econ Model 30:435–441

    Google Scholar 

  • Jadhav P (2012) Determinants of foreign direct investment in BRICS economies: analysis of economic, institutional and political factor. Procedia Soc Behav Sci 37:5–14

    Google Scholar 

  • Jbir R, Charfeddine L (2012) Short term relationships between European electricity markets. Asian Econ Financ Rev 2:276–281

    Google Scholar 

  • Jobert T, Karanfil F (2007) Sectoral energy consumption by source and economic growth in Turkey. Energy Policy 35:5447–5456

    Google Scholar 

  • Johansen S, Juselius K (1990) Maximum likelihood estimation and inference on cointegration—with applications to the demand for money. Oxf Bull Econ Stat 52:169–210

    Google Scholar 

  • Kaufmann RK, Pauly P, Sweitzer J (1993) The effects of NAFTA on the environment. Energy J 14:217–240

    Google Scholar 

  • Khalil HB, Zaidi SJH (2014) Energy crisis and potential of solar energy in Pakistan. Renew Sustain Energy Rev 31:194–201

    Google Scholar 

  • Khalil S, Inam Z (2006) Is trade good for environment? A unit root cointegration analysis. Pak Dev Rev 45:1187–1196

    Google Scholar 

  • Khan MA, Khan MZ, Zaman K, Arif M (2014) Global estimates of energy-growth nexus: application of seemingly unrelated regressions. Renew Sustain Energy Rev 29:63–71

    Google Scholar 

  • Khan MA, Qayyum A (2007) Dynamic modelling of energy and growth in South Asia. Pak Dev Rev 46:481–498

    Google Scholar 

  • Kinuthia BK, Murshed SM (2015) FDI determinants: Kenya and Malaysia compared. J Policy Model 37:388–400

    Google Scholar 

  • Komal R, Abbas F (2015) Linking financial development, economic growth and energy consumption in Pakistan. Renew Sustain Energy Rev 44:211–220

    Google Scholar 

  • Lantz V, Feng Q (2006) Assessing income, population, and technology impacts on CO2 emissions in Canada: where’s the EKC? Ecol Econ 57:229–238

    Google Scholar 

  • Latief R, Lefen L (2018) The effect of exchange rate volatility on international trade and foreign direct investment (FDI) in developing countries along “one belt and one road”. Int J Financ Stud 6:86

    Google Scholar 

  • Luqman M, Ahmad N, Bakhsh K (2019) Nuclear energy, renewable energy and economic growth in Pakistan: evidence from non-linear autoregressive distributed lag model. Renew Energy 139:1299–1309

    Google Scholar 

  • Mahmud SF (2000) The energy demand in the manufacturing sector of Pakistan : some further results. Energy Econ 22:641–648

    Google Scholar 

  • Mielnik O, Goldemberg J (2002) Foreign direct investment and decoupling between energy and gross domestic product in developing countries. Energy Policy 30:87–89

    Google Scholar 

  • Mirza FM, Kanwal A (2017) Energy consumption, carbon emissions and economic growth in Pakistan: dynamic causality analysis. Renew Sustain Energy Rev 72:1233–1240

    CAS  Google Scholar 

  • Mozumder P, Marathe A (2007) Causality relationship between electricity consumption and GDP in Bangladesh. Energy Policy 35:395–402

    Google Scholar 

  • Nahman A, Antrobus G (2005) Trade and the environmental Kuznets curve: is southern Africa a pollution haven? South Afr J Econ 73:803–814

    Google Scholar 

  • NEPRA 2015. National Electricity Power Regulatory Authority. 2015. State of industry report 2015. Web. http://www.nepra.org.pk/Publications/State%20of%20Industry%20Reports/State%20of%20Industry%20Report%202015.pdf

  • Okafor G, Piesse J, Webster A (2015) The motives for inward FDI into sub-Saharan African countries. J Policy Model 37:875–890

    Google Scholar 

  • OSEC, 2010. Pakistan Power Sector (Accessed 18 Dec 2017 from/http://www.osec.ch/sites/default/files/Pakistan-Power%20sectorS.pdf)

  • Ozturk I (2010) A literature survey on energy-growth nexus. Energy Policy 38:340–349

    Google Scholar 

  • Pao H, Tsai C (2011) Modeling and forecasting the CO2 emissions, energy consumption, and economic growth in Brazil. Energy 36:2450–2458

    Google Scholar 

  • Payne JE (2010) A survey of the electricity consumption-growth literature. Appl Energy 87:723–731

    Google Scholar 

  • Rashid IMA, Bakar NAA, Razak NAA (2016) Determinants of foreign direct investment (FDI) in agriculture sector based on selected high-income developing economies in OIC countries: an empirical study on the provincial panel data by using Stata, 2003-2012 ☆. Procedia Econ Finance 39:328–334

    Google Scholar 

  • Rauf A, Zhang J, Li J, Amin W (2018) Structural changes, energy consumption and carbon emissions in China: empirical evidence from ARDL bound testing model. Struct Chang Econ Dyn 47:194–206

    Google Scholar 

  • Rehman A, Deyuan Z, Chandio AA, Hussain I (2018) An empirical analysis of rural and urban populations’ access to electricity: evidence from Pakistan. Energy Sustain Soc 8:40

    Google Scholar 

  • Rehman A, Rauf A, Ahmad M, Chandio AA, Deyuan Z (2019) The effect of carbon dioxide emission and the consumption of electrical energy, fossil fuel energy, and renewable energy, on economic performance: evidence from Pakistan. Environ Sci Pollut Res 26:21760–21773

    CAS  Google Scholar 

  • Sadorsky P (2010) The impact of financial development on energy consumption in emerging economies. Energy Policy 38:2528–2535

    Google Scholar 

  • Samiullah (2014) Energy consumption and economic growth: time series evidence from Pakistan. J Econ Sustain Dev 5:82–92

    Google Scholar 

  • SBP (2017) State Bank of Pakistan. Available from: http://www.sbp.org.pk/

  • Shah SH, Ahmad MH, Ahmed QM (2016) The nexus between sectoral FDI and institutional quality: empirical evidence from Pakistan. Appl Econ 48:1591–1601

    Google Scholar 

  • Shahbaz M, Feridun M (2012) Electricity consumption and economic growth empirical evidence from Pakistan. Qual Quant 46:1583–1599

    Google Scholar 

  • Shahbaz M, Hye QMA, Tiwari AK, Leitao NC (2013) Economic growth, energy consumption, financial development, international trade and CO2 emissions in Indonesia. Renew Sustain Energy Rev 25:109–121

    Google Scholar 

  • Shahbaz M, Islam F, Butt MS (2016) Finance–growth–energy nexus and the role of agriculture and modern sectors: evidence from ARDL bounds test approach to cointegration in Pakistan. Glob Bus Rev 17:1037–1059

    Google Scholar 

  • Shahbaz M, Lean HH (2012) Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia. Energy Policy 40:473–479

    Google Scholar 

  • Shahzad SJH, Kumar RR, Zakaria M, Hurr M (2017) Carbon emission, energy consumption, trade openness and financial development in Pakistan: a revisit. Renew Sustain Energy Rev 70:185–192

    Google Scholar 

  • Siddique HMA, Majeed MT, Khalid A (2016) The relationship between energy consumption and economic growth in Pakistan. Bull Energy Econ 4:329–334

    Google Scholar 

  • Siddiqui R (2004) Energy and economic growth in Pakistan. Pak Dev Rev 43:175–200

    Google Scholar 

  • Tang CF (2009) Electricity consumption, income, foreign direct investment, and population in Malaysia. J Econ Stud 36:371–382

    Google Scholar 

  • Tang CF, Yip CY, Ozturk I (2014) The determinants of foreign direct investment in Malaysia: a case for electrical and electronic industry. Econ Model 43:287–292

    Google Scholar 

  • Udi J, Bekun FV, Adedoyin FF (2020) Modeling the nexus between coal consumption, FDI inflow and economic expansion: does industrialization matter in South Africa? Environ Sci Pollut Res:1–12

  • Waleed A, Akhtar A, Pasha AT (2018) Oil consumption and economic growth: evidence from Pakistan. Energ Source B 13:103–108

    Google Scholar 

  • Wang J, Wang X (2015) Benefits of foreign ownership: evidence from foreign direct investment in China. J Int Econ 97:325–338

    Google Scholar 

  • Wang Z, Zhang B, Wang B (2018) Renewable energy consumption, economic growth and human development index in Pakistan: evidence form simultaneous equation model. J Clean Prod 184:1081–1090

    Google Scholar 

  • World Bank (2014) World development indicator. Available from: http://data.worldbank.org/

  • World Bank (2017). World development indicator. Available from: http://data.worldbank.org/

  • Yildirim E, Aslan A, Ozturk I (2014) Energy consumption and GDP in ASEAN countries: bootstrap-corrected panel and time series causality tests. Singap Econ Rev 59:1–16

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. College of Economics, Sichuan Agricultural University, Chengdu, 611130, China

    Abbas Ali Chandio & Yuansheng Jiang

  2. School of Economics, Lanzhou University, Lanzhou, 730000, Gansu, China

    Fayyaz Ahmad

  3. Department of Business Administration, Sukkur IBA University, Sukkur, 65200, Sindh, Pakistan

    Waqar Akram

  4. College of Economics and Management, Huazhong Agricultural University, Wuhan, 430070, China

    Sajjad Ali

  5. School of Management Science and Engineering, Nanjing University of Information Science and Technology (NUIST), No. 219 Ningliu Road, Nanjing City, Jiangsu Province, China

    Abdul Rauf

Authors
  1. Abbas Ali Chandio
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Yuansheng Jiang
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Fayyaz Ahmad
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Waqar Akram
    View author publications

    You can also search for this author in PubMed Google Scholar

  5. Sajjad Ali
    View author publications

    You can also search for this author in PubMed Google Scholar

  6. Abdul Rauf
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding authors

Correspondence to Abbas Ali Chandio or Yuansheng Jiang.

Additional information

Responsible Editor: Muhammad Shahbaz

Publisher’s note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Chandio, A.A., Jiang, Y., Ahmad, F. et al. Investigating the long-run interaction between electricity consumption, foreign investment, and economic progress in Pakistan: evidence from VECM approach. Environ Sci Pollut Res 27, 25664–25674 (2020). https://doi.org/10.1007/s11356-020-08966-z

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11356-020-08966-z

Keywords

Search

Navigation