Energy Demand in Pakistan: A Disaggregate Analysis

Energy is considered to be the life line of an economy, the most vital instrument of socioeconomic development and has been recognised as one of the most important strategic commodities [Sahir and Qureshi (2007)]. Energy is not only essential for the economy but its supply is uncertain [Zaleski (2001)]. Energy is a strategic source that influenced the outcomes of wars, fueled and strangled economic development and polluted as well as clean up the environment. In the era of globalisation, a rapidly increasing demand for energy and dependency of countries on energy indicate that energy will be one of the biggest problems in the world in the next century. This requires for alternative and renewable sources of energy. Traditional growth theories focus much on the labour and capital as major factor of production and ignore the importance of energy in the growth process [Stern and Cleveland (2004)]. The neo-classical production theories stresses that economic growth increases with the increases in labour, capital and technology. Today energy is indispensable factor and plays an important role in the consumption as well as production process.1 Research suggests that energy plays an important role as compared to other variables included in the production and consumption function for countries which are at intermediate stages of economic development [IEA (2005)]. When we examine disaggregating components of energy demand, it is seen that electricity is the highest quality energy component and its share in energy consumption increases rapidly. Natural gas, petroleum and coal follow electricity respectively.