An empirical analysis of Pakistan's economic growth from the perspective of strong sustainability

Abstract

AbstractPrevious studies have frequently emphasized the accumulation based on the primary drivers of Pakistan's economy, such as physical and human capital; few of them focused on the environmental aspects of energy. This study pays attention to the addition of fundamental natural capital (environmental pollution) and the intake of energy into the economic analysis by using the function of Cobb–Douglas production. Additionally, the effective role of government has been analyzed in this article in terms of direct and indirect market participations. In order to ascertain the long‐term and short‐term correlations, this research used auto‐regressive distributive lag (ARDL) using the co‐integration equation and ARDL bound testing. Then, we break down Pakistan's economic growth using its long‐term growth accounting equation and assess the dynamic results of decomposition. Moreover, using a vector auto regression model, this article examines the temporary alterations in Pakistan's economic development. But on the other side, Pakistan's treasures have the power to be unleashed as resource‐deciding engines of Pakistan's economic growth, including physical investment, consumption of energy, ecological degradation, menpower, and total factor productivity (TFP). The proportion of environmental loss to economic growth shift is lower for input components, while the allocation of physical investment into financial development transition is the biggest. Entire factor efficiency's contribution to financial development has changed, indicating that TFP has a substantial influence on financial development. Promoting continuous improvements in Pakistan's total factor production is essential for the country's long‐term viability. The high sustainability of Pakistan is similarly endangered through mounting energy use and an unmaintainable energy framework that chiefly depends on coal.