EXPLORING THE INTERMEDIARY ROLE OF INSTITUTIONAL QUALITY AND HUMAN CAPITAL IN THE NEXUS BETWEEN FINANCIAL DEVELOPMENT AND ENVIRONMENTAL DEGRADATION IN PAKISTAN

Abstract

Pakistan has been facing the problem of increasing environmental degradation over the past a decade or so. Like most of the emerging economies, Pakistan is also on the trajectory of economic growth but this outcome has also increased environmental degradation (ecological footprint) EFP. It is, therefore, imperative to point out factors, which are contributing to environmental degradation. In this regard, the current study explores the effect of financial development, institutional quality, and human development on EFP. In Financial development and EFP nexus, the study finds the mitigating role of institutional quality and human development. The study used time series data ranging from 1980 to 2021 for Pakistan. The research conducted the Autoregressive Distributed lag technique (ARDL) to find out how these variables are econometrically related. The empirical work unearthed that financial development has increased EFP. The study further found the role of, institutional quality, and human development as dampening the effect of financial development on EFP. Based on the findings of the study Pakistan should keep the process of financial development but for the sustainability of the environment, it must also improve both, institutional quality and human development. Keywords: Financial development, Institutional quality, environmental degradation, human development and ARDL.