An empirical investigation of the determinants of CO2 emissions: evidence from Pakistan.

Abstract

The aim of this paper is to examine the relationship between CO2 emissions and its possible determinants and their direction of causality for Pakistan over the period of 1972 to 2017. The survey of literature guides us that the most frequently discussed factors are real GDP per capita, energy consumption, urbanization, trade openness, and financial development. Testing of environmental Kuznets curve (EKC) hypothesis is the most common in environment literature so we also incorporated the real GDP per capita squared term in the model. Autoregressive distributed lag (ARDL) bound testing approach to cointegration with structural break and error correction method (ECM) are applied to the selected time series to investigate the long-run relationship between CO2 emissions and real GDP per capita, real GDP per capita squared term, energy consumption, urbanization, trade openness, and financial development. The empirical evidence confirms the cointegration among the variables and EKC holds for Pakistan support H1 of the study, which though contradictory to the previous studies conducted on Pakistan but all of previous work faces the exclusion bias and their findings were skewed. The findings also suggest that energy consumption and urbanization have a positive effect on CO2 emissions, supporting H2 and H3. However, H4 and H5 rejected as trade openness and financial development found positively significant. Moreover, bidirectional Granger causality was exists only between CO2 emissions and trade openness. The findings suggests that Pakistan need to settle the economic agenda of the nation through the resolution of economic controversies, energy mix need to tilt toward clean and renewable energy, and rural-urban migration need to manage for better air, water, and living.