Energy Consumption and Macroeconomic Performance: A Feder-type Analysis

Abstract

This study attempts to investigate the relationship between energy consumption and macroeconomic performance for Pakistan by using the time series data from 1972 to 2016.Thestudy has focused two sectors i.e. energy sector and non-energy sector. To explore the direct effect of energy sector on macroeconomic performance and externality (indirect) effect through non-energy sector on macroeconomic performance, Feder-sectoral type classification has been used. Macroeconomic performance index is constructed by using variables such as inflation rate, unemployment rate, budget deficit and gross domestic product (GDP) growth. ARDL technique is employed to estimate the long run relationship among energy consumption and macroeconomic performance. The results of this study reveal that direct and externality effects of all categories of energy consumption at aggregate level (energy use, fossil energy consumption and renewable energy consumption) and disaggregate level (gas, oil, electricity and coal energy consumption) have positive relationship with macroeconomic performance index. The study recommends that any type of energy consumption is a major factor of macroeconomic performance.