Turn on the Lights: Macroeconomic Factors Affecting Renewable in Pakistan

Abstract

The objective of the study is to examine the relationship between macroeconomic factors (i.e., population growth; urbanization, industrialization, exchange rate, price level, food production index and live stock production index) and renewable energy in Pakistan over a period of 1975-2012. In addition, this study uses oil rent as an intervening variable to overcome the biasness of the single equation model. The results indicate that macroeconomic factors positively contributed to renewable energy consumption in Pakistan. The causality test indicate that there is a unidirectional causality running towards macroeconomic factors to renewable energy in Pakistan, however, renewable energy Granger cause oil rent but not via other route. In addition, there is bidirectional causality between exchange rate and live stock production in Pakistan. Variance decomposition analysis shows that economic growth has a major contribution to increase renewable energy in Pakistan