Does energy use and economic growth allow for environmental sustainability? An empirical analysis of Pakistan

Abstract

The rapid growth of environmental pollution and the destruction of eco-systems force every individual economy to focus on environmentally friendly economic development. This research explores economic growth, energy use, foreign direct investment, agriculture, industrialization, and urban population growth with environmental sustainability proxied as CO₂ emissions from 1971 to 2018. Econometric methods are employed for different purposes as the unit root for the stationary check. ARDL determines the long-run relationship, while the Decoupling Index examines the growing speed of variables and CO₂ emissions, and VECM has been used for short- and long-run causalities. The study's findings confirm the long-run impact of all environmental pollution variables as ECM-1 is negatively significant. The short-run causality test shows CO₂ emissions because of economic growth (GDP = > CO₂ ≠ GDP), energy use (ENU = > CO₂ ≠ ENU), and foreign direct investment (FDI = > CO₂ ≠ FDI) at a 1% level. In contrast, CO₂ emissions are not the Granger cause of GDP, ENU, and FDI. Economic growth, energy use, and foreign direct investment will increase CO₂ emission, not vice versa. The study findings suggest that governments should move toward adopting green technology by implementation of green fiscal policies.

Keywords: ARDL model; CO2 emission; Decoupling Index; Economic growth; Environmental sustainability; Impulse response.