Sustainability in the Face of Economic Growth, Financial Development and CO2 Emissions in Pakistan

Abstract

Grounded on Environmental Kuznets Curve (EKC), this research aims to explore the nexus amongst financial development, economic growth and CO₂ emissions in the context of Pakistan. Data (time-series) has been gathered for the period of 1990 to 2022 from world bank database. Following unit root analysis, the Auto Regressive Distributive Lag (ARDL) and Error Correction Model (ECM) is used for assessing long-run and short-run causal link between study variables. The outcomes revealed both financial development and economic growth to be significant causes of CO₂ emissions. Further, Error correction form (ECM) shows a relatively slower speed of adjustment towards the long-run equilibrium. This suggest that in long run effects of financial development and economic progress influence CO₂ emissions but there is time lag for the system to respond after receiving any shock over the period. The findings provide fresh insights to managers and practitioners for designing policy intervention in the wave of CO₂ emissions towards environmental sustainability.

     Keywords: financial development, economic growth, CO2 emissions, environmental degradations, ARDL, sustainability