Energy Demand Supply Gap and Economic Development nexus in Pakistan

Abstract

The demand for energy is rising in Pakistan. This increased in energy demand could be a result of rapid urbanization and economic development. As the economy develops, economic activities, such as industrialization and provision of services rise. These economic activates raise the energy demand. On another hand, Pakistan generating a small amount of energy from its own sources and a major part of its energy supply is relying on energy imports. In this study, we analyze the economic development and energy gaps nexus in Pakistan. The data on energy consumption, energy production, energy exports, and energy imports is taken from U.S. Energy Information Administration, we use this information to generate aggregate energy supply and energy demand. We also use World development indicators (WDI) in order to get data on financial development, urbanization, and economic growth. We apply the Auto-Regressive Distributive Lag (ARDL) bound test. Empirical findings show the marginal effects of financial improvement on energy gaps exists in long as well as in the short run. These findings are not sensitive to control additional variables (i.e. urbanization and economic growth). These results show financial development, urbanization, and economic growth increasing the energy demand and supply gaps.