Economic Growth, Industrialization, and CO2 Emissions in Pakistan: Insights from ARDL Modeling

Abstract

This study explores how industrialization, economic growth (measured by GDP per capita), and CO? emissions have interacted in Pakistan over nearly five decades, from 1974 to 2022. It also considers the influence of population growth and foreign direct investment (FDI) on this relationship. To analyze the data, the ARDL model was used, ensuring the reliability of the results by confirming stationarity with the Augmented Dickey-Fuller (ADF) test. The results showed that in the long run, a 1% increase in GDP per capita and FDI inflows results in respective increases in CO? emissions of 0.33% and 0.061%. Still, a 1% rise in industrial activity lowers CO? emissions by 0.34%. In the short run, a 1% rise in GDP per capita and FDI reduces CO? emissions by 0.21% and 0.020%, respectively. Conversely, a 1% increase in industrial activity causes emissions of 0.29%. These findings are in line with the Environmental Kuznets Curve (EKC) theory, which holds that CO? emissions initially rises when a nation industrializes but as the technology advances and more rigorous rules are followed, the level of CO? emissions decreases. Based on these results, policies emphasizing investments in renewable energy, strict environmental rules enforced, and support of clean technologies and sustainable industrial practices are suggested.