Dynamics of Formal and Informal Institutions on Environmental Quality in Pakistan

Environment and economic growth have been interlinked with each other since the beginning of mankind. The institutions (formal and informal) play an important role in the determination of the relationship between income and the environment. Many indicators measure the environment, i.e., air, land, water, and emissions. There is a need to develop a comprehensive measure of environmental quality, measuring all dimensions. The study aimed to develop a multidimensional and comprehensive measure of environmental quality and to analyze the role of formal and informal institutions on the environment and economic growth. Furthermore, the policy measures are suggested based on the results of the study. The environmental policies are better reinforced through good governance and improved institutional quality. To achieve these objectives, secondary data has been used from different international agencies of developed and developing countries with a special focus on Pakistan. The long-run and short-run relationships have been identified by using co-integration analysis and causality analysis. The results of the empirical analysis show that Institutional quality exerts a positive impact on economic growth. Further, Economic growth follows a decreasing trend in CO2 emissions, which validates the existence of EKC theory. The study also found that better institutions/policies cause higher income and improved environment in the long run, although it hampers growth in the short run. The study considers the vital roles of economic growth, institutional quality, and public awareness for a sustainable environment. To facilitate sustainable development in Pakistan, policymakers should be encouraged to prioritize policy design and implementation.