IDEAS home Printed from https://ideas.repec.org/a/eee/rensus/v70y2017icp185-192.html
   My bibliography  Save this article

Carbon emission, energy consumption, trade openness and financial development in Pakistan: A revisit

Author

Listed:
  • Shahzad, Syed Jawad Hussain
  • Kumar, Ronald Ravinesh
  • Zakaria, Muhammad
  • Hurr, Maryam

Abstract

The paper empirically examines the cointegrating relationship between carbon emissions, energy consumption, trade openness and financial development in Pakistan using ARDL bounds test for cointegration procedure. Annual time series data is used for the period 1971–2011. The results reveal an inverted U-shaped relationship between carbon emission and energy consumption with a maximum threshold value of energy consumption per capita 640kg of oil equivalent. Currently, the economy is operating below this level and therefore it is expected that carbon emission will continue to rise gradually over some time until the threshold level is reached. The lower than threshold level of energy consumption implies that scale and composition effects dominate the technology effect in terms of energy use. Further, the long-run results indicate that one percent increase in trade openness and financial development will increase carbon emission by 0.247% and 0.165%, respectively. The short-run elasticities are 0.122% and 0.087% for trade openness and financial development, respectively. The Granger causality results indicate a unidirectional causality from energy consumption, trade openness and financial development to carbon emission; and a bi-directional causality between energy consumption and financial development. In line with the results and given the growing focus on climate change effects in Pakistan, the paper discusses some policy issues for consideration and highlights the need to interpret elasticities with caution.

Suggested Citation

  • Shahzad, Syed Jawad Hussain & Kumar, Ronald Ravinesh & Zakaria, Muhammad & Hurr, Maryam, 2017. "Carbon emission, energy consumption, trade openness and financial development in Pakistan: A revisit," Renewable and Sustainable Energy Reviews, Elsevier, vol. 70(C), pages 185-192.
    • Handle: RePEc:eee:rensus:v:70:y:2017:i:c:p:185-192
    DOI: 10.1016/j.rser.2016.11.042
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1364032116308401
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.rser.2016.11.042?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Halicioglu, Ferda, 2009. "An econometric study of CO2 emissions, energy consumption, income and foreign trade in Turkey," Energy Policy, Elsevier, vol. 37(3), pages 1156-1164, March.
    2. Pao, Hsiao-Tien & Yu, Hsiao-Cheng & Yang, Yeou-Herng, 2011. "Modeling the CO2 emissions, energy use, and economic growth in Russia," Energy, Elsevier, vol. 36(8), pages 5094-5100.
    3. Farhani, Sahbi & Chaibi, Anissa & Rault, Christophe, 2014. "CO2 emissions, output, energy consumption, and trade in Tunisia," Economic Modelling, Elsevier, vol. 38(C), pages 426-434.
    4. Al-mulali, Usama & Binti Che Sab, Che Normee, 2012. "The impact of energy consumption and CO2 emission on the economic and financial development in 19 selected countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(7), pages 4365-4369.
    5. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 99-125.
    6. Omri, Anis, 2013. "CO2 emissions, energy consumption and economic growth nexus in MENA countries: Evidence from simultaneous equations models," Energy Economics, Elsevier, vol. 40(C), pages 657-664.
    7. Shahbaz, Muhammad & Lean, Hooi Hooi, 2012. "Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia," Energy Policy, Elsevier, vol. 40(C), pages 473-479.
    8. repec:ipg:wpaper:2014-582 is not listed on IDEAS
    9. Al-mulali, Usama & Binti Che Sab, Che Normee, 2012. "The impact of energy consumption and CO2 emission on the economic growth and financial development in the Sub Saharan African countries," Energy, Elsevier, vol. 39(1), pages 180-186.
    10. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    11. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    12. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    13. Rafindadi, Abdulkadir Abdulrashid, 2016. "Revisiting the concept of environmental Kuznets curve in period of energy disaster and deteriorating income: Empirical evidence from Japan," Energy Policy, Elsevier, vol. 94(C), pages 274-284.
    14. Brian R. Copeland & M. Scott Taylor, 2009. "Trade, Tragedy, and the Commons," American Economic Review, American Economic Association, vol. 99(3), pages 725-749, June.
    15. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    16. Salahuddin, Mohammad & Gow, Jeff & Ozturk, Ilhan, 2015. "Is the long-run relationship between economic growth, electricity consumption, carbon dioxide emissions and financial development in Gulf Cooperation Council Countries robust?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 51(C), pages 317-326.
    17. Abdur Rehman Cheema, 2015. "High-rise buildings worsened heatwave," Nature, Nature, vol. 524(7563), pages 35-35, August.
    18. Smyth, Russell & Narayan, Paresh Kumar, 2015. "Applied econometrics and implications for energy economics research," Energy Economics, Elsevier, vol. 50(C), pages 351-358.
    19. Sbia, Rashid & Shahbaz, Muhammad & Hamdi, Helmi, 2014. "A contribution of foreign direct investment, clean energy, trade openness, carbon emissions and economic growth to energy demand in UAE," Economic Modelling, Elsevier, vol. 36(C), pages 191-197.
    20. Komal, Rabia & Abbas, Faisal, 2015. "Linking financial development, economic growth and energy consumption in Pakistan," Renewable and Sustainable Energy Reviews, Elsevier, vol. 44(C), pages 211-220.
    21. Zhang, Yue-Jun, 2011. "The impact of financial development on carbon emissions: An empirical analysis in China," Energy Policy, Elsevier, vol. 39(4), pages 2197-2203, April.
    22. Usama Al-Mulali & Ilhan Ozturk & Hooi Lean, 2015. "The influence of economic growth, urbanization, trade openness, financial development, and renewable energy on pollution in Europe," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 79(1), pages 621-644, October.
    23. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    24. Sharif Hossain, Md., 2011. "Panel estimation for CO2 emissions, energy consumption, economic growth, trade openness and urbanization of newly industrialized countries," Energy Policy, Elsevier, vol. 39(11), pages 6991-6999.
    25. Shahbaz, Muhammad & Hye, Qazi Muhammad Adnan & Tiwari, Aviral Kumar & Leitão, Nuno Carlos, 2013. "Economic growth, energy consumption, financial development, international trade and CO2 emissions in Indonesia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 25(C), pages 109-121.
    26. Al-Mulali, Usama & Ozturk, Ilhan, 2015. "The effect of energy consumption, urbanization, trade openness, industrial output, and the political stability on the environmental degradation in the MENA (Middle East and North African) region," Energy, Elsevier, vol. 84(C), pages 382-389.
    27. Michieka, Nyakundi M. & Fletcher, Jerald & Burnett, Wesley, 2013. "An empirical analysis of the role of China’s exports on CO2 emissions," Applied Energy, Elsevier, vol. 104(C), pages 258-267.
    28. Marcel Kohler, 2013. "CO2 Emissions, Energy Consumption, Income and Foreign Trade: A South African Perspective," Working Papers 356, Economic Research Southern Africa.
    29. Ozturk, Ilhan & Acaravci, Ali, 2013. "The long-run and causal analysis of energy, growth, openness and financial development on carbon emissions in Turkey," Energy Economics, Elsevier, vol. 36(C), pages 262-267.
    30. Al-mulali, Usama & Tang, Chor Foon & Ozturk, Ilhan, 2015. "Estimating the Environment Kuznets Curve hypothesis: Evidence from Latin America and the Caribbean countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 50(C), pages 918-924.
    31. Mohamed Amine Boutabba, 2014. "The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy," Post-Print hal-02877966, HAL.
    32. Sebri, Maamar & Ben-Salha, Ousama, 2014. "On the causal dynamics between economic growth, renewable energy consumption, CO2 emissions and trade openness: Fresh evidence from BRICS countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 39(C), pages 14-23.
    33. Omri, Anis & Daly, Saida & Rault, Christophe & Chaibi, Anissa, 2015. "Financial development, environmental quality, trade and economic growth: What causes what in MENA countries," Energy Economics, Elsevier, vol. 48(C), pages 242-252.
    34. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    35. Odhiambo, Nicholas M., 2009. "Energy consumption and economic growth nexus in Tanzania: An ARDL bounds testing approach," Energy Policy, Elsevier, vol. 37(2), pages 617-622, February.
    36. Yang, Zihui & Zhao, Yongliang, 2014. "Energy consumption, carbon emissions, and economic growth in India: Evidence from directed acyclic graphs," Economic Modelling, Elsevier, vol. 38(C), pages 533-540.
    37. repec:ipg:wpaper:201415 is not listed on IDEAS
    38. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    39. Amaryllis Mavragani & Ioannis E. Nikolaou & Konstantinos P. Tsagarakis, 2016. "Open Economy, Institutional Quality, and Environmental Performance: A Macroeconomic Approach," Sustainability, MDPI, vol. 8(7), pages 1-13, June.
    40. Tamazian, Artur & Chousa, Juan Piñeiro & Vadlamannati, Krishna Chaitanya, 2009. "Does higher economic and financial development lead to environmental degradation: Evidence from BRIC countries," Energy Policy, Elsevier, vol. 37(1), pages 246-253, January.
    41. Al-mulali, Usama, 2012. "Factors affecting CO2 emission in the Middle East: A panel data analysis," Energy, Elsevier, vol. 44(1), pages 564-569.
    42. Lean, Hooi Hooi & Smyth, Russell, 2010. "CO2 emissions, electricity consumption and output in ASEAN," Applied Energy, Elsevier, vol. 87(6), pages 1858-1864, June.
    43. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 2001. "Is Free Trade Good for the Environment?," American Economic Review, American Economic Association, vol. 91(4), pages 877-908, September.
    44. Kohler, Marcel, 2013. "CO2 emissions, energy consumption, income and foreign trade: A South African perspective," Energy Policy, Elsevier, vol. 63(C), pages 1042-1050.
    45. Sadorsky, Perry, 2010. "The impact of financial development on energy consumption in emerging economies," Energy Policy, Elsevier, vol. 38(5), pages 2528-2535, May.
    46. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    47. Abdur Rehman Cheema, 2014. "Pakistan must invest in adaptation," Nature, Nature, vol. 514(7522), pages 305-305, October.
    48. Sahbi Farhani & Anissa Chaibi & Christophe Rault, 2014. "A study of CO2 emissions, output,energy consumption, and trade," Working Papers 2014-56, Department of Research, Ipag Business School.
    49. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
    50. Nasir, Muhammad & Ur Rehman, Faiz, 2011. "Environmental Kuznets Curve for carbon emissions in Pakistan: An empirical investigation," Energy Policy, Elsevier, vol. 39(3), pages 1857-1864, March.
    51. Shahbaz, Muhammad & Solarin, Sakiru Adebola & Mahmood, Haider & Arouri, Mohamed, 2013. "Does financial development reduce CO2 emissions in Malaysian economy? A time series analysis," Economic Modelling, Elsevier, vol. 35(C), pages 145-152.
    52. Menyah, Kojo & Wolde-Rufael, Yemane, 2010. "CO2 emissions, nuclear energy, renewable energy and economic growth in the US," Energy Policy, Elsevier, vol. 38(6), pages 2911-2915, June.
    53. Pao, Hsiao-Tien & Tsai, Chung-Ming, 2011. "Modeling and forecasting the CO2 emissions, energy consumption, and economic growth in Brazil," Energy, Elsevier, vol. 36(5), pages 2450-2458.
    54. Shahbaz, Muhammad & Lean, Hooi Hooi & Shabbir, Muhammad Shahbaz, 2012. "Environmental Kuznets Curve hypothesis in Pakistan: Cointegration and Granger causality," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(5), pages 2947-2953.
    55. World Bank, 2014. "World Development Indicators 2014," World Bank Publications - Books, The World Bank Group, number 18237.
    56. Kasman, Adnan & Duman, Yavuz Selman, 2015. "CO2 emissions, economic growth, energy consumption, trade and urbanization in new EU member and candidate countries: A panel data analysis," Economic Modelling, Elsevier, vol. 44(C), pages 97-103.
    57. Jayanthakumaran, Kankesu & Verma, Reetu & Liu, Ying, 2012. "CO2 emissions, energy consumption, trade and income: A comparative analysis of China and India," Energy Policy, Elsevier, vol. 42(C), pages 450-460.
    58. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    59. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    60. Boutabba, Mohamed Amine, 2014. "The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy," Economic Modelling, Elsevier, vol. 40(C), pages 33-41.
    61. Alshehry, Atef Saad & Belloumi, Mounir, 2015. "Energy consumption, carbon dioxide emissions and economic growth: The case of Saudi Arabia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 41(C), pages 237-247.
    62. Shahbaz, Muhammad & Kumar Tiwari, Aviral & Nasir, Muhammad, 2013. "The effects of financial development, economic growth, coal consumption and trade openness on CO2 emissions in South Africa," Energy Policy, Elsevier, vol. 61(C), pages 1452-1459.
    63. repec:ipg:wpaper:2014-056 is not listed on IDEAS
    64. Pao, Hsiao-Tien & Tsai, Chung-Ming, 2011. "Multivariate Granger causality between CO2 emissions, energy consumption, FDI (foreign direct investment) and GDP (gross domestic product): Evidence from a panel of BRIC (Brazil, Russian Federation, I," Energy, Elsevier, vol. 36(1), pages 685-693.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ertugrul, Hasan Murat & Çetin, Murat & Şeker, Fahri & Dogan, Eyüp, 2015. "The impact of trade openness on global carbon dioxide emissions: Evidence from the top ten emitters among developing countries," MPRA Paper 97539, University Library of Munich, Germany, revised 10 Mar 2016.
    2. Mumin Atalay Cetin & Ibrahim Bakirtas, 2020. "The long-run environmental impacts of economic growth, financial development, and energy consumption: Evidence from emerging markets," Energy & Environment, , vol. 31(4), pages 634-655, June.
    3. Shahbaz, Muhammad & Hye, Qazi Muhammad Adnan & Tiwari, Aviral Kumar & Leitão, Nuno Carlos, 2013. "Economic growth, energy consumption, financial development, international trade and CO2 emissions in Indonesia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 25(C), pages 109-121.
    4. Rafindadi, Abdulkadir Abdulrashid, 2016. "Does the need for economic growth influence energy consumption and CO2 emissions in Nigeria? Evidence from the innovation accounting test," Renewable and Sustainable Energy Reviews, Elsevier, vol. 62(C), pages 1209-1225.
    5. Usama Al-Mulali & Ilhan Ozturk & Hooi Lean, 2015. "The influence of economic growth, urbanization, trade openness, financial development, and renewable energy on pollution in Europe," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 79(1), pages 621-644, October.
    6. Irwan Shah Zainal Abidin & Muhammad Haseeb & Muhammad Azam & Rabiul Islam, 2015. "Foreign Direct Investment, Financial Development, International Trade and Energy Consumption: Panel Data Evidence from Selected ASEAN Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 5(3), pages 841-850.
    7. Charfeddine, Lanouar & Ben Khediri, Karim, 2016. "Financial development and environmental quality in UAE: Cointegration with structural breaks," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 1322-1335.
    8. Xiaoxia Shi & Haiyun Liu & Joshua Sunday Riti, 2019. "The role of energy mix and financial development in greenhouse gas (GHG) emissions’ reduction: evidence from ten leading CO2 emitting countries," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(3), pages 695-729, October.
    9. Muhammad Shahbaz & Avik Sinha, 2019. "Environmental Kuznets curve for CO2emissions: a literature survey," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 46(1), pages 106-168, January.
    10. Shahzad, Syed Jawad Hussain & Rehman, Mobeen Ur & Hurr, Maryam & Zakaria, Muhammad, 2014. "Do Economic and Financial Development Increase Carbon Emission in Pakistan: Empirical Analysis through ARDL Cointegration and VECM Causality," MPRA Paper 60310, University Library of Munich, Germany.
    11. Sofien, Tiba & Omri, Anis, 2016. "Literature survey on the relationships between energy variables, environment and economic growth," MPRA Paper 82555, University Library of Munich, Germany, revised 14 Sep 2016.
    12. Ali, Wajahat & Abdullah, Azrai & Azam, Muhammad, 2017. "Re-visiting the environmental Kuznets curve hypothesis for Malaysia: Fresh evidence from ARDL bounds testing approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 77(C), pages 990-1000.
    13. Muhammad, Shahbaz, 2012. "Multivariate granger causality between CO2 Emissions, energy intensity, financial development and economic growth: evidence from Portugal," MPRA Paper 37774, University Library of Munich, Germany, revised 31 Mar 2012.
    14. Shahbaz, Muhammad & Sinha, Avik, 2019. "Environmental Kuznets Curve for CO2 emission: A survey of empirical literature," MPRA Paper 100257, University Library of Munich, Germany, revised 2019.
    15. Shahbaz, Muhammad & Hoang, Thi Hong Van & Mahalik, Mantu Kumar & Roubaud, David, 2017. "Energy consumption, financial development and economic growth in India: New evidence from a nonlinear and asymmetric analysis," Energy Economics, Elsevier, vol. 63(C), pages 199-212.
    16. Omri, Anis & Daly, Saida & Rault, Christophe & Chaibi, Anissa, 2015. "Financial development, environmental quality, trade and economic growth: What causes what in MENA countries," Energy Economics, Elsevier, vol. 48(C), pages 242-252.
    17. Shahbaz, Muhammad & Shahzad, Syed Jawad Hussain & Ahmad, Nawaz & Alam, Shaista, 2016. "Financial development and environmental quality: The way forward," Energy Policy, Elsevier, vol. 98(C), pages 353-364.
    18. Dogan, Eyup & Seker, Fahri, 2016. "Determinants of CO2 emissions in the European Union: The role of renewable and non-renewable energy," Renewable Energy, Elsevier, vol. 94(C), pages 429-439.
    19. Shahbaz, Muhammad & Haouas, Ilham & SBIA, Rashid & Ozturk, Ilhan, 2018. "Financial Development-Environmental Degradation Nexus in the United Arab Emirates: The Importance of Growth, Globalization and Structural Breaks," MPRA Paper 87365, University Library of Munich, Germany, revised 11 Jun 2018.
    20. Al-Mulali, Usama & Ozturk, Ilhan, 2016. "The investigation of environmental Kuznets curve hypothesis in the advanced economies: The role of energy prices," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 1622-1631.

    More about this item

    Keywords

    Carbon Emissions; Cointegration; Causality; Pakistan;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:rensus:v:70:y:2017:i:c:p:185-192. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/600126/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.