Pakistan's Industrial Development Pathway: An Analysis of Energy- Economic Development Nexus

Abstract

The industrial sector is a vital component of Pakistan's economy and is intrinsically linked to the agricultural sector, making it a cornerstone of the economic development of country. In the fiscal year 2022-2023, this sector contributed 18.5 percent to the GDP. This study examined the fluctuations in industrial sector of Pakistan using time series data from the year 1970 to 2022. This research aimed to understand the influence of Renewable energy, Non-Renewable energy, Inflation, Labour force participation rate and Capital accumulation on the growth of Pakistan's industrial sector. Energy crisis are growing day by day and it is being produced expensively. The significant energy deficit impacts both households and industries, leading to negative outcomes. The main issue is the shortage and high cost of electricity, which severely affects the industrial sector. Industries face challenges like shutdowns and relocation due to unstable and costly energy. Methodologies such as the ADF unit root test for stationarity, SIC criteria for lag length testing, and the ARDL were employed to fulfil our objectives. Both long run and short-run relationships were analysed. The analytical results revealed that share of non renewable energy, producers’ acquisition of fixed capital, Labour force participation had positive impact on industrial growth, while, inflation and renewable energy usage had negative impact on industrial development of Pakistan.