Energy Conservation Policies may affect Trade Performance in Pakistan: Confirmation of Feedback Hypothesis

This study investigates the relationship between energy consumption and trade performance in Pakistan by using the annual time series data from the period of 1973-2011. The cointegration results confirm the valid long run relationship between energy consumption and trade performance. Our results indicate that gross domestic product, exports and imports have positive impact on energy consumption. The findings of Generalized forecast error variance decomposition method under vector autoregressive (VAR) system suggest the bidirectional causal relationship of gross domestic product, exports and imports with energy consumption. This confirms the presence of feedback hypothesis in Pakistan. We note that energy conservation policies will reduce the trade performance which leads to decline in economic growth in Pakistan. The present study may guide policy makers in formulating a conclusive energy and trade policies for sustainable growth for long span of time.