Does Environment Really Matter for Economic Sustainability: Exploring the Role of Green Energy in Pakistan's Economy

Abstract

The key objective of the study is to investigate empirically the long-run Environment and Growth Sustainability nexus in Pakistan economy. To empirically achieve the objectives of the study, the Auto-Regressive Distributed Lag (ARDL) Bound testing method was employed from 1990 to 2022. Green energy is used to signify environmental performance indicators and GDP growth rate along with other conventional growth factors; physical capital and human capital are used as potential economic sustainability indicators. To rationalize the findings of ARDL, restricted and unrestricted models are also estimated. The findings of the study disclose that the series under consideration are co-integrated which directs the existence of the long-run relationship. It is found that green energy enhances economic sustainability in the long run however it adversely impacts economic sustainability in the short run in the case of Pakistan's economy. The empirical outcomes of the study validate the widespread concern of the literature on the existence of the “growth hypothesis” which supports, that there is a systematic positive causation running from green energy to economic sustainability. The study findings suggest that regulations in the energy sector can encourage the applications of green energy resources, particularly in the real sector of the economy, leading to reduced emissions. It is important to adopt international standards for firms and industries and an international collaboration framework is required to ensure economic sustainability to prevent environmental degradation.