Financial Development and Economic Growth: The Role of Energy Consumption

Abstract

The study investigates financial development and economic growth nexus, incorporating use of energy resources for Pakistan for 1980-2016, using Johansen co-integration and granger causality approach. The results of Johansen test for co-integration show the link between financial development, energy and economic growth in the long time span. The findings of granger causation test uncovered a two-way causality between capital and economic growth. The one-way causality exists from economic growth in energy and financial development. The findings also exposed the one-way causality from capital formation and exports to use of energy. The government should take steps to make financial sectors stronger as it has a great role in increasing the growth of an economy.