The Role of Power Generation and Industrial Consumption Uncertainty in De-industrialising Pakistan

The declining time path of the industrial share in GDP and employment has long been viewed as a natural outcome of the matured stages of development analogous to the radical decline in agricultural sector and a persistent move towards services sector. But the situation in country like Pakistan is not due to such structural transformation. Rather, the energy crises is expected to play a detrimental role in the growth of industrial sector. The volatility in power consumption by industrial sector and stagnant power generation not only hurts the industrial sector but also has devastating effects on the other interlinked sectors of the economy. This study endeavours to identify the role of power sector’s crises behind the industrial downfall in Pakistan and attempts to work out the extent to which this phenomenon may prevail in future. The attempt is made for Pakistan over a time span of 1970-2010. The Johansen Cointegration, Error Correction Model, Impulse Response Functions and Variance Decomposition techniques are applied to explore the short and long-run relationships among selected variables from the power sector. The uncertainty in industrial consumption of electricity and power generation are identified as major factors in undermining industrial growth whereas domestic consumption did not appear significantly volatile. For the future, power generation will remain the major contributing factor in shaping the time path of industrialisation in Pakistan.