Old wine in a new bottle: Applying the novel dynamic ARDL simulations approach to explore the impact of energy efficiency, financial development, economic growth, foreign direct investment, and urbanization on CO2 emissions

Abstract

Achieving carbon neutrality targets is crucial while considering the adverse impacts of carbon dioxide emissions (CE) on human life and the ecosystem. Therefore, its socioeconomic drivers have frequently been probed in the existing body of literature. Therefore, we investigate the impact of energy efficiency, FDI, financial development, urbanization, and economic growth on CE in Pakistan from 1975 to 2020. For this purpose, we apply the novel dynamic ARDL simulation approach to retrieve the short- and long-run estimates. The empirical results confirm that cointegration exists among the considered variables. Further, both the short- and long-run results reveal that energy efficiency impedes emissions, whereas urbanization, financial development, and FDI increase emissions. Considering the outcomes, there is a need to enhance energy efficiency in Pakistan. For this purpose, investment in technological advancements and innovations is required. Moreover, R&D in the energy sector should be promoted.

Keywords: CO2 Emission; Dynamic ARDL simulations; Energy Efficiency; Financial Development; Foreign Direct Investment; Urbanization.