Energy consumption: The importance of institutional quality in Pakistan

The energy sector of Pakistan has undergone several changes over the previous several years, due to the ever-increasing energy consumption. The objective of this study is to determine the extent to which the consumption of energy sources can be attributed to Pakistan’s institutional quality, based on the perception of positive impact of institutional quality on facilitation of public goods. In this context, the demand functions of energy sources (electricity, natural gas and petroleum products) for four main economic sectors(i.e., residential, industry, commercial and agricultural sectors), have been examined by employing bound testing to cointegration (ARDL approach), over a period of 35 years (1984-2019). The analysis reveals that institutional quality has significant positive impact on energy consumption. The results of the study provide implications for energy sector reforms by illustrating the importance of institution-building policy efforts.