DOES ECONOMIC EXPANSION COSTS ENVIRONMENTAL DEGRADATION? TESTING KUZNET’S INVERSE U SHAPED CURVE IN PAKISTAN COUNTRY

Abstract

This research investigates whether economic expansion costs environmental degradation by testing environmental Kuznets’ inverse U-shaped curve hypothesis in developing countries like Pakistan. The time-series data from 1960 to 2017 for the study variables (i.e. Industrialization, Urbanization, International Trade, Energy Consumption, Squared GDP, and CO2 emission) has been extracted from WDI (i.e. World Development Indicators). The Cointegration and VECM dynamic systems have been applied to investigate the long and short-run effects of predictors on environmental degradation. We conclude that industrialization and energy consumption positively and significantly contribute to deteriorating the environment in Pakistan. On the other hand, International trade has no effect on environmental degradation. This may be because Pakistan imports more than it exports. Moreover, Pakistan largely exports raw materials and agricultural products. Therefore, Pakistan requires less harmful industrial productions or CO2 emissions; hence, less damage to environmental conditions. On the other hand, urbanization significantly and negatively affects CO2 emissions. Finally, the coefficient of GDP2 suggests a significant and negative effect on environmental degradation and indicates that environmental degradation starts decreasing significantly. The results of our research are consistent with the Environmental Kuznets Curve (EKC), which states that at the initial stage, the country’s income increases at the expense of environmental degradation.