The nexus between income inequality, economic growth and environmental degradation in Pakistan

Abstract

This study examines the impact of income inequality and economic growth on environmental degradation in Pakistan using ARDL bounds testing approach for the period 1966–2011. Empirical results for the aggregate CO2 emissions and its four sources such as CO2 emissions from solid fuel, liquid fuel and gaseous fuel consumption as well as electricity and heat production confirm the existence of long run co-integrated relationship between income inequality, economic growth and environment degradation. The estimated results indicate that carbon emissions increase as the income gap expands in Pakistan. Besides the negative impact of industrial share and population density on CO2 emissions, we also confirm that economic growth in Pakistan comes up with higher emissions. Hence, the hypothesis of EKC is not valid for Pakistan during the study period. Our empirical findings are robust as evidenced by dynamic ordinary least squared and the U-tests. Overall, this study suggests that the distribution of income matters to aggregate carbon emissions and focus should be made on sustained economic growth to reduce pollutants and hence CO2 emission in the study area.