Evaluating the Economic and Environmental Repercussions of the Price Paradox in Natural Resource Commodities: Market Drivers and Potential Challenges for Sustainable Development

Abstract

The natural resource commodity price paradox is a phenomenon that has been observed in the past. The price of a commodity constantly and unpredictably fluctuates. This phenomenon makes it difficult for businesses to plan for future needs and investments. This study examined the relationship between natural resource commodity prices, renewable energy demand, economic growth, high-technology exports, inbound FDI, and greenhouse gas (GHG) emissions in Pakistan, using the 1975 to 2020 time period. The robust least squares (RLS) regression results showed that natural resource commodity prices and economic growth increased GHG emissions. In contrast, there was a negative relationship between renewable energy demand (and high-tech exports) and GHG emissions in Pakistan. The results verified the resource price curse hypothesis and growth-associated emissions in a country. The Granger causality estimates showed the unidirectional relationship of renewable energy consumption with GHG emissions, natural resource pricing, and inbound FDI. Further, high-technology exports Granger caused GHG emissions and GDP per capita. The results verified the country’s growth-led green energy sources and inbound FDI, resource pricing-led inbound FDI, and GHG emissions-led resource pricing. The impulse response function suggested that resource commodity pricing and the country’s economic growth will likely increase GHG emissions in the next ten years. At the same time, green energy demand, technological advancements, and sustainable investment in cleaner production would help decrease GHG emissions over time. The variance decomposition analysis suggested that technology advancements would likely have greater variance shock on GHG emissions, followed by commodity resource pricing and green energy demand. The resource price paradox hampers economic and environmental outcomes, which need to be resolved through advancement in cleaner production technologies, adoption of green energy demand, and stabilization of resource commodity pricing that helps to move forward toward the sustainable development of the country.