The study aims to analyze the mediating role of environmental degradation (ED) in the association between energy consumption (EC) and poverty (POV) in Pakistan. For this purpose, data are collected from different sources such as the global economy and World Bank ranging from 1985 to 2017. Augmented Dickey-Fuller (ADF) test is used for testing the stationarity of data. Results of ADF depict that data are stationary at the level and first difference; so this study adopts the autoregressive distributive lag (ARDL) model bound test for analyzing the long-run and short-run relationship among the modeled variables. The study follows the steps of Baron and Kenny's (1986) method to test the mediation of environmental degradation between energy consumption and poverty. The study utilized the Sobel test and VAF to confirm the mediation. The results indicate a negative and significant impact of energy consumption on poverty. The findings revealed that ED partially mediates the long-run relationship between EC and POV. The study suggests that the government makes the energy accessible to the people to fulfill their basic needs which ultimately reduces poverty. Moreover, the government should make policies to improve the environment as the study found that environmental degradation significantly contributes to poverty.
Keywords: ARDL; Energy consumption; Environmental degradation; Poverty; Sobel test.