| Journal of Social and Policy Sciences |
J-SAPS |
The Cyclical Patterns of Macroeconomic Fundamentals and Energy Consumption in Pakistan
The study examines the impact of macroeconomic fundamentals, namely, economic growth, financial development, trade openness, and technological innovation on energy consumption in Pakistan using annual data from 1972 to 2018. The results of Johansen cointegration test confirm the existence of long-term relationship among the variables. The empirical analysis based on the Structural Vector Autoregressive (SVAR) approach has shown bidirectional causality between economic growth and energy consumption. Although energy consumption remains a significant factor in promoting economic growth, our findings reveal a bidirectional causality between financial development and Pakistan's energy consumption. There also exists a unidirectional impact of technological innovation and trade openness on energy consumption in the country. Furthermore, our analysis suggests that macroeconomic fundamentals are the primary drivers of energy consumption in Pakistan and therefore provide the basis for the country's financial and economic development. Hence, based on the estimated results, it is recommended that policymakers should develop effective and sustainable energy policies to meet the country’s future energy needs while considering the dynamic and cyclical nature of macroeconomic fundamentals.
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