Abstract
This paper has empirically explored the impact of macroeconomic and financial development on CO2 emissions by utilizing a novel dynamic simulated ARDL model for annual time series data from 1982 to 2018 for Pakistan. The results of a novel dynamic simulated ARDL disclosed that the growth of stock market, FDI, economic growth, and consumption of oil wield a positive impact on CO2 emission, while domestic credit exerts a negative effect on CO2 emission both in the short and the long run in Pakistan. The stock market development and domestic credit wield a significant influence on carbon dioxide emission in Pakistan both in the long and the short run. FDI exerts significant impact only in the long run, while economic growth and consumption of oil wield significant impact only in the short run on CO2 emission in Pakistan. This study opens up new visions for the economy of Pakistan to sustain financial and economic growth by protecting environment from pollution through its efficient national environmental policy, fiscal policy, and monetary policy.
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