Is energy consumption sensitive to foreign capital inflows and currency devaluation in Pakistan?

Abstract

This study investigates the relationship between foreign capital inflows and energy consumption by incorporating economic growth, exports and currency devaluation in energy demand function for the case of Pakistan. The long-run and short-run effects are examined via ARDL bounds testing procedure. Foreign capital inflows and currency devaluation (economic growth and exports) decrease (increase) energy consumption in long-run. The results confirm a feedback effect between foreign capital inflows and energy consumption. These findings would be helpful to policy makers in designing comprehensive economic and energy policies for utilizing foreign capital inflows as a tool for optimal use of energy sources to enhance economic development in long run.

Are the Responses of Sectoral Energy Imports Asymmetric to Exchange Rate Volatilities in Pakistan? Evidence From Recent Foreign Exchange Regime

“…Contrary to our expectations, the coefficients of exchange rate (LnEX-PKR/USD) are all reported as positive and significant, implying that an increase in exchange rate (rupee depreciation) accelerates energy imports. Ideally, an increase in exchange rate (rupee depreciation) diminishes the domestic energy demand (Shahbaz et al, 2018;Ghoddusi et al, 2019), thereby reducing the energy imports. Since the energy resources in Pakistan diminish and the energy demand grows rapidly, the country has no option but to import energy irrespective of the consequences.…”

“…Theoretically, the sign associated with β 1 could be either positive or negative since the effect of exchange rate volatility in the literature is inconsistent. The coefficient estimate of β 2 is expected to be negative, since increasing the exchange rate diminishes energy consumption (see Shahbaz et al, 2018;Ghoddusi et al, 2019); therefore, the demand for energy imports declines. The sign of β 3 is expected to be positive, since a higher foreign direct investment expands domestic economic activity, which, in turn, accelerates the energy demand; thus, to meet this increasing energy demand, Pakistan has to import more energy.…”

“…Exchange rate can affect energy trade through the opportunity cost of energy products and the attractiveness of domestic energy products relative to the foreign energy products. Empirical studies found the effect of exchange rate to be significant and negative on the primary energy consumption in Pakistan (i.e., Shahbaz et al, 2018) and gasoline consumption in Iran (Ghoddusi et al, 2019). In the panel framework, De Schryder and Peersman (2015) found that exchange rate appreciation diminishes the crude oil demand of oil-importing countries.…”

“…As depicted in Figure 1, the gap between energy demand and supply is large and widening with time (Raza et al, 2015;Rafique and Rehman, 2017). The economy of Pakistan is going through major energy crises of all time (Mahmood et al, 2014;Shahbaz et al, 2018). Mahmood et al, (2016) argued that the poor energy policy, political unrest, and weak law and order situation lead Pakistan to energy crises.…”

“…Mahmood et al, (2016) argued that the electricity shortages are the primary reason for low per capita energy consumption. The current electricity shortages of 8,000 MW in 2017 were expected to reach 13,000 MW at the end of 2020 (Shahbaz et al, 2018). The World Energy Outlook (WEO, 2016) observed that about 51 million people (27% of total population) in Pakistan do not have access to electricity, while 144 million people do not have a reliable electricity connection.…”