Dynamic role of energy utilization, financial development, and information technology on environmental sustainability? Evidence by the tragedy of the commons theory

Abstract

Economic growth is contingent upon the financial sector expansion. A solid and well-developed financial industry can improve business opportunities. The financial sector has a decisive role to play in mitigating damage to the environment. Despite extensive research on sustainability, more needs to be accomplished in terms of pinpointing the keys to a world free of environmental degradation. The study aims to illuminate the relationship between CO2 emissions and variables such as non-renewable energy consumption, GDP growth, FDI, and information and communication technologies. Time series data for Pakistan from 1985 to 2021 is employed with the linear autoregressive distributed lag (ARDL) method, highlighting the underlying relationship between the variables. Moreover, the econometric model is derived from the STRIPAT function based on carbon as an environmental variable, while energy utilization and communication technology are population affluent. According to the empirical results of the current study, there is a negative connection between financial development and CO2. However, foreign direct investment, information and communication technologies, and non-renewable energy sources are positively associated with CO2. The study findings suggest that policymakers should promote more financial investment in greener technologies and digitization, and the government should also revamp its energy mix and emphasize alternate energy sources.