Does Economic Policy Uncertainty Reshape Electricity Production in Pakistan? Evidence from an Asymmetric Analysis

Abstract

Electricity is important for industrial growth and country development. Pakistan’s ongoing electricity crises, high fuel bills and continuous economic and political instability make it more vulnerable to economic policy uncertainty (EPU). Understanding the critical role of fluctuation in the economic policy and macroeconomic indicators in electricity generation is critical for policymakers and investors. Therefore, this study separately analyzes this relationship between renewable and non-renewable electricity production. The outcome of this study indicates that in periods of high policy fluctuation, Pakistan uses diesel-based electricity for its energy demand. In periods of economic stability and policy certainty, Pakistan produces more electricity from renewable sources like solar panels. Furthermore, this study highlights the critical role of exchange rates and inflation in altering electricity generation decisions. This study offers important policies focusing on economic stability, reforms and investment-friendly policies.