Impact of Gas Conservation on Aggregate Economy and Trade of Pakistan

Abstract

The present study assesses the gas-use based aggregate production framework to find out the cointegration among the variables and thereby estimate the error correction mechanism of the empirical models. Johansen’s based co-integration test has been applied with VECM based causality test to assess the long run and causal relationship for yearly time series data over 1980- 2014 for Pakistan. The empirical findings demonstrate a statistically significant co-integration to exist among real economic production/GDP, labor, capital and gas-use in both the models with and without exports. The findings of causality test depict long-run unidirectional relationship from labor, capital stock, gas-use and export towards the real GDP. The feedback connection between gas-use and real GDP is also found statistically significant in the short-term. The findings imply a warning for reduction of gas-use via energy conservation policies which may reduce exportable production. The reduction of gas use will downward curtail the economic growth, directly and via exports’ multiplier effect upon GDP, indirectly. Therefore, development of new energy technologies has been suggested to balance the supply-demand gap and thereby promisingly expanding the export-led sector for triggering the Economic output/GDP growth and sustainability of energy resources in the country.