ENERGY-GDP CAUSAL RELATIONSHIP FOR PAKISTAN: A GRAPH THEORETIC APPROACH

The question of causal relationship between energy consumption and economic growth has significant importance in energy economics. This study aims at investigating “does energy consumption cause economic growth or economic growth leads to more energy consumption?” For this purpose, departing from the standard Granger approach of causality we employ “Graph Theoretic Approach for Causal Inference” in a multivariate framework for Pakistan using the annual data over the period of 1971-2005. Graph theoretic models provide an effective mathematical tool for researchers to determine causal direction and manipulate them in relation to the associated probability distributions. Particularly, these graphical patterns require a definite relationship of conditional independence and dependence among the variables. The empirical findings of the study show that one–way causality is running from energy consumption to economic growth. It implies that while designing energy policy, policy makers should take into account the impact of any energy conservation policy on economic growth.