pak eco article

7/31/2019 Pak Eco Article

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ASAD KHAN


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Energy and Economic Growth

in PakistanBy : REHANA SIDDIQUI

Rehana Siddiqui is Chief of Research at the Pakistan

Institute of Development Economics, Islamabad.

The Pakistan Development Review43 : 2 (Summer 2004) pp. 175200


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Recent rise in energy prices, shrinking existingresources, and the search for alternative sourcesof energy.

The impact of electricity and petroleumproducts as well as that of electricity only is highand statistically significant.

The results of this study show that energyexpansion is expected to lead to higher growthand its shortage may retard the growth process.


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The evidence shows in Pakistan electricityconsumption affects economic growthsignificantly, and there is bi-directional causality

between economic growth.

And there is no causal relationship betweennatural gas consumption and economic growth.

Energy demand, particularly for households,responds positively and significantly toeconomic growth.


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The results show that commodity producingsectors like industry and agriculture has

limited substitutability between differentsources of energy.

Thus, the rise in prices of energy hasimportant implications for energy use inPakistan.


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The energy requirement in Pakistan was lowerrelative to many developing and developedcountries.

Per capita availability of energy, used asindicator of prosperity, is low and it hasremained constant from 1993 to 1996.

The gross domestic product (GDP) per unit ofenergy is lower in Pakistan as compared to othercountries.


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In Pakistan, ratio of growth rate of energy use togrowth rate of output produced, viz., indicator ofenergy intensity, was around 0.96 during 19702003.

In addition to economic growth, the rise and fall insupply and demand for petroleum products hasimportant implications for balance of payment.

In 1980s, approximately 90 percent of oil needs werefulfilled from imports of petroleum products.


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In the 1990s, Govt. emphasis to exploit existingenergy resources & build base for domesticproduction & exploration.

In 1994, the emphasis was on providing the fiscalincentives to the petroleum industries.

In the policy of 1997, the emphasis was onrevival of those incentives and on encouragingoff-shore exploration activity.


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Transport and power sectors are the main usersof petroleum products as the total use of thesetwo sectors varied between 70-90 percent of

total consumption.

The share of household sector was 9.5 percent.

Natural gas is another critical source of energy.Supply and demand gap was initially positivebut by time it is also going negative.


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The gap between supply and demand wasnegative showing rapid growth in demand,relative to supply.

Pakistan was unable to meet rapidly growingdemand for electricity due to financial andpolitical constraints.

in 1994, incentives were given to independentpower producers (IPPs) to set up thermal powerunits in Pakistan.


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HUBCO has largest power generating capacityof 1200 MW started production in 1997. therewas 16 IPPs with generation capacity of 5794

MW in operation in 2002-03.

Transmission and distribution losses and theftare also critical issues.

Like other energy products, the price ofelectricity also increased sharply from the 1990s.


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The economic theory suggests that rise incapital and labor affects economic growth

positively and significantly.

After Capital & labor the role of energy ineconomic growth became critical issue.

The evidence for China shows that energyplayed a critical role in its economic growth.


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The results of causality test are show thatgrowth in capital stock, in electricityconsumption and in petroleum products affects

economic growth significantly.

For the natural gas the effect of rise inconsumption does not affect economic growth.

The effect of labor growth is insignificant & theindicator of human capital, is though positivebut statistically also insignificant.


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The impact of growth rate of electricity andpetroleum products on output growth is

positive and statistically significant.


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Energy is a critical determinant of economicgrowth.

Therefore, its shortage can retard economicgrowth.

However, in order to achieve high economic

growth rates, multidimensional policies arerequired and these policies should not ignore theenergy sector.


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The rise in supply of energy at affordableprices is important for economic growth.

The issue of renewable and non renewablesources of energy, are important and theissue should be examined in detail.

The poverty reduction strategy of Pakistanconcentrates on energy sector also.

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