Impact of Energy Prices on Industrialization in Pakistan: An Econometric Investigation

Abstract

This research examines the link between energy costs and industrial production in Pakistan from 2005 to 2023. Using time-series econometric techniques such as the Augmented Dickey-Fuller (ADF) test, Johansen cointegration test, Vector Error Correction Model (VECM), and Autoregressive Distributed Lag (ARDL) model, the study examines the short- and long-term effects of electricity tariffs, gas prices, and crude oil prices on the Industrial Production Index (IPI). The study has also used control variables such as the inflation rate and currency rate to adjust for macroeconomic impacts. The study findings show that energy costs and industrial production have strong long-term correlations, although the short-term effects differ. The policy implications point to the necessity for stable energy pricing and efficient energy policy to support industrial expansion. The study concludes with targeted policy recommendations for tariff reform, industrial energy resilience, and renewable energy integration to ensure sustainable industrial growth in Pakistan.

Keywords: Energy, Industrial Production, ARDL, Pakistan.