Abstract
This research assessed that how various sources of energy such as renewable, fossil fuel, electricity generation using oil, and hydroelectric sources can influence the level of output in Pakistan. For this purpose, the ARDL bounds test using annual time series data from 1980 to 2019 is used to determine the cointegration relationship between output per person and various sources of energy. The empirical results disclose that the linear terms of fossil fuel energy consumption and electricity production using oil sources significantly enhance economic growth while the squared terms of both significantly deteriorate economic growth both in the long and short-run in Pakistan. This confirms that fossil fuel has an inverted U-shaped influence on output per person in the long run as well as in the short-run period in Pakistan. Besides this, economic growth significantly falls due to a one percent increase in linear terms of renewable energy consumption and electricity production using hydroelectric sources in long run but economic growth significantly increases due to a one percent increase in the squared term of both terms. This provides evidence of the U-shaped consequence of renewable energy consumption on output level only for the long-run period. In short, the study concludes that the aggregate and disaggregate energy sources reveal similar results on the output. The study suggests that giving a boost to economic growth using fossil fuel is may be fruitful in the early phase of production but in the later phase of production it is not fruitful whereas the use of clean energy although is not beneficial in the early phase of production in expanding production activities in Pakistan but in the later phase of production it is fruitful for production but also for the environment. Therefore, the present study proposes that government may take serious efforts to shift its emphasis from nonrenewable to renewable energy sources to fulfill energy requirements for achieving sustainable economic growth in Pakistan.
•Fossil fuel energy consumption has backward U-form repercussion on per head output.•The use of clean energy ensures the U-form effect on per head output in the long run.•Electricity production using oil sources on domestic output shows inverted U-form relationship.•Per unit cost of production remains low for nonrenewable energy but it remains high for renewable energy.•The average cost of production of oil consumption is low while it is high for hydroelectric source.