Abstract
A number of studies have already determined the existence of inverted U-shaped environmental Kuznets curve in Pakistan however the role of structural breaks in determining the relationship is yet to be investigated. The objective of this study was to determine if the presence of possible structural breaks explain the existence of environmental Kuznets curve type relationship in Pakistan for the period 1980-2016 by using data of total energy consumption, Real GDP per capita, foreign direct investment and trade openness. For the analysis the study first used the conventional time series econometric methods to determine the order of integration and Cointegration in the model. Second; as it is evident from the literature that presence of structural break in the model can have a significant impact, so the study used the Zivot and Andrews unit root test with one structural break to determine the order of integration in the model and Gregory-Hansen -Cointegration method to determine the presence of structural break within Cointegration framework. The results of the study not only confirm the existence of environmental Kuznets curve in the model, it also confirms the presence of structural break in the model.
Highlights
Foreign direct investment (FDI) is essential for capital inflows and economic development
The study aims to identify if structural breaks (SBs) significantly affect “FDI, CO2 emissions and Pakistan’s economy (PE)” for the period 1980-2016
We have used “both the conventional unit root tests, i.e., Augmented Dickey-Fuller and the Phillips-Perron unit root test.”Table 1 “suggests that all the variables are non-stationary at level,” suggesting that a unit root is present among all data series
Summary
Foreign direct investment (FDI) is essential for capital inflows and economic development. FDI inflows increase the quality and quantity of human capital (HC) by providing onthe-job training. FDI positively affects an economy’s growth prospects (EGP), it adversely affects a country’s environmental quality (EQ) (Sapkota & Bastola, 2017; Alvarado, Iñiguez & Ponce, 2017), especially when a country lacks necessary regulations to protect the environment (Hundie & Daksa, 2019; Fan & Hao, 2020). Many developing countries do not enforce environmental regulations as they are more interested in attracting FDI. Many researchers call it the “pollution haven hypothesis (PHH).” (Xing & Kolstad, 2002)
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