Symmetric and asymmetric impact of oil price, FDI and economic growth on carbon emission in Pakistan: Evidence from ARDL and non-linear ARDL approach

Abstract

Several studies have examined the impact of economic growth on carbon emission; however, the symmetric and asymmetric impact of oil price along with FDI on carbon emission has not studied in the case of Pakistan. For this purpose, the long and short-run impact of per capita income, FDI, and oil price on carbon emissions investigated by employing the ARDL and non-linear ARDL cointegration methodology, along with Granger causality in the context of Pakistan for 1971-2014. This study confirms the EKC hypothesis for Pakistan under both methodologies, whereas symmetric results show that economic growth and FDI intensify carbon emission in both the long and short-run, while oil price increase emission in the short-run and reduces emission in the long-run. Whereas asymmetric results in the long-run show that an increase in oil price reduces emissions and decrease in oil price intensify emissions. The causality analysis also supports the above findings and suggests a feedback effect between economic growth and carbon emission in Pakistan. This study provides implications for policymakers, where the descending flow of FDI allows limited space to Pakistan in FDI selection; however, the presence of emission convergence and adoption of carbon pricing may facilitate Pakistan in achieving its environmental targets. While diversifying the overall energy mix towards more renewable/clean energy along with formulating favorable policies for the adoption of renewable energy like solar by the industrial and residential consumers can further reduce the overall emission levels.

Keywords: ARDL; Carbon emission; EKC hypothesis; FDI; Non-linear ARDL; Oil price; Pakistan.