Does political risk undermine environment and economic development in Pakistan? Empirical evidence from China–Pakistan economic corridor

Abstract

China–Pakistan Economic Corridor (CPEC) invests {text{US}} 62 billion in Pakistan’s energy, infrastructure, and other development projects to step toward Eurasia’s economic integration. However, CPEC may exacerbate climate change vulnerabilities for Pakistan’s struggling economy due to potential environmental hazards and consequences. In this context, the current study seeks to examine the impact of political risk on carbon emissions and economic growth in Pakistan while also considering the relevance of trade openness, Chinese outward Foreign Direct Investment (text{FDI}), and One Belt One Road left( text{OBOR} right) policy. To investigate this impact, we use the autoregressive distributed lag technique to cointegration and the fully modified ordinary least squares estimator for robustness results, using data spanning 2000,, {text{to }},,2020. Our empirical findings reveal that trade openness, FDI, and OBOR policy contribute to pollution and economic growth, but political stability slows the rate of environmental deterioration and increases economic growth. Furthermore, the existence of robust political stability mitigates the negative impacts of FDI and trade openness on the environment, while strong political stability aids the positive effects of FDI and trade openness on economic growth. Also, the findings confirmed that a better political environment promotes economic development while simultaneously lowering carbon emissions. Our results may assist the Government of Pakistan in transforming text{CPEC} into a model green text{OBOR} initiative in the region.