Abstract. This study explored the relationship between trade openness, foreign direct investment, GDP, and environmental quality in Pakistan by using time series data for time period of 1971-2016.To examine long-run and short-run association among projected variables, we employed autoregressive distributed lag ARDL-bounds testing approach. The findings of the study confirmed a positive and significant long run association between trade openness, foreign direct investment, and environmental degradation in Pakistan. However, there is no relationship between GDP and environmental quality. Policymakers must consider environmental degradation due to trade openness and FDI; further environmental quality should not be ignored. The government must enforce environmental laws on local and international organizations.
IntroductionThe worldwide environmental concerns due to adverse climate changes over planet earth have tended world economies towards the use of green energy along with considerable reduction in CO 2 emission [1]. According to the recent studies, the large part of carbon emission is coming from the developing economies due to rapid economic growth. The globalization, where it benefits the developing economies to nurture their economies through reduced investment and trade barriers, opening of technology transfer, and mobilized capital and labor [2].To investigate the real impact of trade on environment, various studies haveanalyzed the dynamic relationship between trade liberalization, energy usage and economic growth. Most of the researchers agreed at first that trade liberalization has improved allocation of domestic resources. Some studies found that liberalization of trade reduced pollution and decreased the use of energy efficiency. For example, the study by Sbia et al. [3] found that liberalization of trade enhanced the flows of new technology which substituted the old technology profoundly overwhelming the use of energy. Conversely, some studies found that liberalization of trade has deteriorated the environmental quality. The study by Lopez [4] shows that trade liberalization was tailed by an escalation in energy-based-events such as manufacturing and transportation that devour heavy energy and yield pollution.The aim of this research is to investigate the economic impacts of the trade openness on the environmental quality in Pakistan. Specifically, the paper inspects whether openness of the trade has harmed the quality of the environment in Pakistan. For empirical results, we used ARDL approach for short run and long run.The structure of the paper is as follows: Section 2 reviews the existing literature on the subject. Section 3 presents the model, methodology and data. Section 4 presents the empirical results and also discussion. The last section concludes the study.