Role of financial development, foreign direct investment inflow, innovation in environmental degradation in Pakistan with dynamic ARDL simulation model

Abstract

The purpose of this research is to determine the impact of innovation, economic growth, financial development, trade, foreign direct investment (FDI), electricity consumption, and urbanization on the environmental degradations in Pakistan. This study has employed the dynamic autoregressive distributed lag model (ARDL), to investigate the actual change in the independent variables and its impact on the dependent variable through graphs. The findings demonstrate that energy consumption, GDP growth, urbanization, and trade negatively influence the carbon emissions in the short term. On the other hand, the findings indicate that in the long term, only GDP growth and trade had a significantly negative impact on emissions. Urbanization has a positive and considerable impact on the emissions of carbon dioxide in the long run. On the other hand, financial development and foreign direct investment (FDI) help reduce the environmental degradation in the short term and long term. Moreover, innovation positively affects the carbon emissions in both the long and short run. Policy recommendations are given based on the findings of this study.

Keywords: Dynamic ARDL simulations; Economic factors; Electricity consumption; FDI; Financial development; Innovation; Urbanization.