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A validity of environmental Kuznets curve under the role of urbanization, financial development index and foreign direct investment in Pakistan

Author

Listed:
  • Abdul Farooq
  • Ahsan Anwar
  • Muhammad Ahad
  • Ghulam Shabbir
  • Zulfiqar Ali Imran

Abstract

Purpose - This research aims to inspect the existence of the “environmental Kuznets curve” (EKC) in the presence of foreign direct investment (FDI), financial development (FD) and urbanization throughout 1972–2018 for Pakistan. Design/methodology/approach - For time series analysis, Phillips and Perron (PP) and Augmented Dickey–Fuller (ADF) unit root tests are used to confirm the level of integration. For robustness, Kim and Perron (2009)’s structural break unit root test is employed, which identifies the order of integration in the presence of structural break years. Further, combined cointegration analysis is performed to confirm the existence of a long-run association between underlying variables. Furthermore, autoregressive distributed lag (ARDL) analysis is employed for the robustness of the cointegration approach. Findings - The cointegration analysis confirms the existence of a long-run association among variables. The authors find a positive and significant impact of urbanization, FD and foreign development on environmental degradation in the long run. Similarly, only FDI increases environmental degradation in the short run. In addition, the authors find an inverted U-shape relationship between economic growth and environmental quality which, further, confirms the presence of EKC in Pakistan. Originality/value - This research contributes to applied economics in many ways: the combined effect of urbanization, FD, FDI and economic growth on carbon dioxide (CO2) emission is checked simultaneously. To avoid ambiguity, this study constructs the FD index through the principal component analysis (PCA). Moreover, the role of structural breaks has been considered through the analysis. Novel Bayer-Hanck combined cointegration analysis is employed to detect the existence of long-run relationships among underlying variables.

Suggested Citation

  • Abdul Farooq & Ahsan Anwar & Muhammad Ahad & Ghulam Shabbir & Zulfiqar Ali Imran, 2021. "A validity of environmental Kuznets curve under the role of urbanization, financial development index and foreign direct investment in Pakistan," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 40(2), pages 288-307, December.
  • Handle: RePEc:eme:jeaspp:jeas-10-2021-0219
    DOI: 10.1108/JEAS-10-2021-0219
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    Citations

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    Cited by:

    1. Shabir Mohsin Hashmi & Xuyou Yu & Qasim Raza Syed & Li Rong, 2024. "Testing the environmental Kuznets curve (EKC) hypothesis amidst climate policy uncertainty: sectoral analysis using the novel Fourier ARDL approach," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(7), pages 16503-16522, July.
    2. Chen, Jiamin & Chen, Yuwei, 2024. "Does natural resources rent promote carbon neutrality: The role of digital finance," Resources Policy, Elsevier, vol. 92(C).
    3. Feng Dong & Jingyun Li & Zhicheng Li & Yuhuan Chen & Lu Zheng & Bin Lu & Yajie Liu, 2024. "Exploring synergistic decoupling of haze pollution and carbon emissions in emerging economies: fresh evidence from China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(7), pages 17281-17318, July.

    More about this item

    Keywords

    CO2 emission; Urbanization; FDI; Financial development; Combined cointegration; Pakistan; C22; O44; Q53;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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