Environmental Degradation, Quality of Institutions and Tourism: New Evidence from Pakistan

Abstract

This study explores the effects of tourism, quality of institutions and FDI on environmental degradation inPakistan for the two time periods i.e. 1996-2017 and 2000-2017. Quality of institutions is included in the time period2000-2017 which is adopted from world governance indicators but due to lack of the data it has not been included insecond time (1999-2017). To find out the relationship among given variables, Ordinary Least Square (OLS) regressionwas carried out, moreover, Breusch-Godfrey Serial Correlation LM test, Heteroscedasticity Test and HistogramNormality test were also applied to diagnose the econometric issues in the given models. The findings of the studyrevealed that tourism is significant and influential factor of environmental degradation in Pakistan. Similarly, foreigndirect investment is also contributing in environmental degradation but its effect is insignificant for both time periods.On the other hand, an inverse relationship is observed between quality of institution and environmental degradation.The outcomes of the study suggest that environmental degradation can be overcome by increasing the quality of theinstitutions. Moreover, the government initiatives to attract foreign tourists by introducing new visa policy, whichincludes; electronic visa, on arrival visa and opening new avenues for tourists (e.g. Kartarpur Corridor and CPECinitiatives etc.) will have tremendous impact on the national economy. However, environmental degradation is theoutcome of tourism, therefore, policy maker’s needs to consider the negative effects of tourism in addition to itspositive effects on the economy.