Finding the cointegration and causal linkages between the electricity production and economic growth in Pakistan

The present study reveals the impact of electricity production on economic growth in Pakistan. It covers the period of 1975-2010, and assumes a log-linear relationship between the variables. The bounds test for cointegration indicates a unique long-run relationship between the variables. Moreover, it finds that sub-optimal electricity production is eroding the private business investment in the short run. Based on these facts, this study advocates the promotion of hydropower plants that are beneficial for two reasons. First, it would produce clean power in the country. Second, the cost of production would also drop resulting in lower tariff rates. Finally, it finds bidirectional causal relationship between the variables in the long run whereas no causal relationship is found in the short run.

► This study investigates electricity production and growth nexus. ► The bounds test for cointegration indicates a unique long-run relationship. ► Sub-optimal electricity production is causing short-run losses. ► There is a bidirectional causal relationship between the variables.