The Role of Foreign Direct Investment in Environmental Degradation in Pakistan: An Empirical Analysis by Using the ARDL Technique on Time Series Data

Abstract

The study explores how FDI and GDP impact the degradation of the environment in Pakistan. This research applied the ARDL technique to analyze the independent variables' short-run and long-run impact on the dependent variable. Data has been collected from WDI for 25 years. Research results show that energy use together with GDP expansion, urbanization, and trade activities, produce negative impacts on carbon emissions during short periods. The research shows that emissions were significantly negatively impacted by GDP growth and trade in the long-term period alone. Financial development in combination with foreign direct investment (FDI) provides short-term as well as long-term reductions to environmental pollution. The positive effect of innovation exists throughout both short-run and long-run periods as measured by carbon emissions. The prediction part from the present matches the projection for the far future. Research shows innovation produces only minimal yet beneficial effects on carbon emission, which become evident equally in the short-run and long-run perspectives. This study could benefit from learning valuable insights and policy recommendations by evaluating Pakistan's development situation with other nations, which share parallel urbanization and industrialization trends.