Can Financial Development Help in Raising Sustainable Economic Growth and Reduce Environmental Pollution in Pakistan? Evidence from Non Linear ARDL Model

Abstract

It is a global challenge to reduce environmental pollution and enhance sustainable economic growth. This study explores the role of financial development as an instrument in reducing environmental pollution and enhancing sustainable economic development in Pakistan for the period 1980-2020. The Non-linear Autoregressive Distributed Lag (NARDL) econometrics technique has been utilized to find the association between environmental pollution, economic growth, and financial development. The results show that positive shocks of financial development increase economic growth and reduce environmental pollution. While the negative shocks of financial development increase both economic growth and environmental pollution. Globalization has negative impact on economic growth and the use of energy increases economic growth and environmental pollution. The study suggests that the State Bank of Pakistan and other financial institutions should formulate and implement soft loan policies to induce the private investors to use low carbon emission technologies.

Revisiting the environmental impact of financial development on economic growth and carbon emissions: evidence from South Asian economies

“…It can be observed that all mean values of variables are higher than their standard deviation. This indicates that all the data are under dispersed (Amjad et al 2021 ). Based on the normality test, LNGDPPC, CO 2 , LNLFTOT, LNEDU, and LNINDU are not normal at the 5% level.…”

“…Asteriou and Spanos ( 2019 ) found that FD increases economic growth in 26 European countries before the financial crisis, while after the financial crisis, it declines economic growth. Amjad et al ( 2021 ) examined the impact of FD on economic growth and the environment from 1990 to 2020 in Pakistan. The Nonlinear ARDL econometrics technique was employed to determine the empirical results.…”

Exploring the moderating effect of globalization, financial development and environmental degradation nexus: a roadmap to sustainable development

“…The level and quadratic coefficients of the FD index propose a U-shaped relationship (Rani et al 2022a , 2022b ), which means that a higher level of FD in SAARC countries degrades CO2. The moderator variable KOF improves the environmental quality and decreases the CO 2 emissions in Q 2 and Q 3 (Amjad et al 2021b ; Sun et al 2021 ; Rahman, 2020 ). However, Guan et al ( 2022 ) found that KOF decreases CO 2 emissions.…”

“…To achieve higher economic growth, most of the economies rely on fossil fuel consumption by the massive industrialization (Abad-Segura et al 2020 ; Hsu et al 2021 ). It badly pollutes the environmental quality which causes global warming, flooding, melting ice caps, and climate vulnerability (Amjad et al 2021b ). The most recent conference on climate change COP26 paid special attention to decline greenhouse gases.…”

Nexus between Tourism and Economic Growth in Pakistan: Using Gregory Hansen and ARDL with Structural Break

“…Using Cobb-Douglas production function in empirical analysis the study showed that labor force participation is an important component of EG. Amjad et al (2021) pointed out that urban population insignificantly increases EG in Pakistan. The most recent study by Wang et al (2022) showed that labor force participation significantly escalates EG in BRICS countries.…”