The asymmetric impact of financial development on ecological footprint in Pakistan.

Abstract

The current research aims to investigate the impact of financial development on the ecological footprint in Pakistan from 1980 to 2018 by controlling economic growth, the square of economic growth, and energy consumption. The structural break unit root test results show that all variables are stationary at first difference. The bound F-test for cointegration affirmed the indications of a long run connection between the parameters in the discussion. Moreover, we use the non-linear autoregressive distributed lag model to check the non-linear links in establishing the associations between financial development and ecological footprint. The outcomes suggest an asymmetric connection between financial development and ecological footprint because positive and negative shocks in financial development have different effects on ecological footprint. The findings reveal that the impact of the positive shock on financial development is negative but insignificant. Besides, the impact of the negative shock on financial development is positive and statistically significant. It implies that a 1% increase in the negative shock of financial development causes a 0.0877% rise in ecological footprint. The coefficient of economic growth is significant at a 1% level of significance. In the long run, a 0.4471% increase in ecological footprint is associated with a 1% increase in economic growth. However, the coefficient of the square of economic growth is negative but insignificant. Thus, the environmental Kuznets curve hypothesis is not valid in Pakistan. Likewise, energy consumption positively affects the ecological footprint. The results of short run estimates correspond to the long run estimates. As a policy suggestion, the current study suggests expanding green financial development in Pakistan by emphasizing more on Sustainable Development Goals.