Determinants of electricity consumption function in Pakistan: Old wine in a new bottle

The objective of the study is to re-investigate the multivariate electricity consumption function for Pakistan, particularly, economic growth, foreign direct investment and population growth over a 36-year time period, i.e., between 1975 and 2010. The study employed the bounds-testing procedure for cointegration which examines the short-run and long-run estimates. Dynamic short-run causality test is applied to determine the causality direction between electricity consumption and its determinants, by using Wald-F statistics. The results reveal that determinants of electricity consumption function are cointegrated and influx of foreign direct investment, income and population growth is positively related to electricity consumption in Pakistan. However, the intensity of these determinants is different on electricity consumption. If there is 1% increase in income, foreign direct investment and population growth; electricity consumption increases by 0.973%; 0.056% and 1.605%, respectively. This infers that income, foreign direct investment and population growth induce an increase in electricity consumption in Pakistan. Dynamic short-run causality test indicates that there has been unidirectional causality which is running from population growth to electricity consumption in Pakistan.