Impact of Financial Development, Energy Consumption, Trade Openness, and Population on CO2 Emissions in Pakistan: Application of STIRPAT Model
Abstract
Environmental degradation is one of the contemporary issues faced by people across the globe. Carbon dioxide (CO 2 ) emissions resulting from increased economic activities have been observed as the major contributor
towards current environmental deterioration. Efforts have been made to reduce CO 2 emissions through various mitigations and adaptations at various levels. Financial sector interventions are considered as one of the effective ways to reduce this menace. Therefore, the current study applied modified version of the STIRPAT model to examine the nexus between financial sector expansion and CO 2 emissions in Pakistan using yearly data from 1980-2023. The Augmented Autoregressive Distributed Lag (ARDL) bounds testing corroborated the long-run co-integration with CO 2 emissions when variables of energy consumption, trade openness, Gross
Domestic Product (GDP), and population were included as control variables in the analysis. The empirical results showed that the financial sector development, energy consumption, and GDP had a positive and significant association with CO 2 emissions. However, trade openness was observed to be inversely associated with CO 2 emissions in the country. Moreover, the population had a negligible and inverse association by CO 2 emissions. The study concluded that financial sector reforms were instrumental to lower the CO 2 emissions in Pakistan. Therefore, economic policy with embedded environmental approach should be implemented to encourage clean production and diminish CO 2 emissions in the country.
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Copyright (c) 2024 Rao Muhammad Atif, bushra pervaiz, Mubina Fatima, Muhammad Qasim Manzoor, Ayesha Javed, Rana Hamza Gull
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