NEXUS BETWEEN ENERGY CONSUMPTION, FINANCIAL MARKET DEVELOPMENT, AND URBANIZATION: EVIDENCE FROM EMERGING ECONOMY

This empirical study contributes to extend the literature on the nexus between energy consumption, financial development, economic growth, and urbanization in Pakistan. We use annual time series data covering the year from 1970 to 2018 and employ the Autoregressive Distributive lag (ARDL) and Granger causality test. The results of the ARDL-bound test confirm cointegration between the variables, as the null hypothesis of no cointegration is rejected. Further, the long-run results show that financial development and urbanization have positive correlation with energy demand. However, economic growth is negatively correlated with energy consumption. Similarly, in the short run, the financial market and urbanization stimulated energy demand. However, economic growth is insignificant with energy consumption. Besides that, a bidirectional relationship is noted between urbanization and energy consumption. Based on the finding, this empirical study suggests that policymakers and government should revisit their policies regarding economic growth, explore alternative sources of energy, and try to shift towards renewable energy, which is cheaper and eco-friendly.