Can Financial Development Help in Raising Sustainable Economic Growth and Reduce Environmental Pollution in Pakistan? Evidence from Non Linear ARDL Model

Abstract

It is a global challenge to reduce environmental pollution and enhance sustainable economic growth.  This study explores the role of financial development as an instrument in reducing environmental pollution and enhancing sustainable economic development in Pakistan for the period 1980-2020. The Non-linear Autoregressive Distributed Lag (NARDL) econometrics technique has been utilized to find the association between environmental pollution, economic growth, and financial development. The results show that positive shocks of financial development increase economic growth and reduce environmental pollution. While the negative shocks of financial development increase both economic growth and environmental pollution. Globalization has negative impact on economic growth and the use of energy increases economic growth and environmental pollution. The study suggests that the State Bank of Pakistan and other financial institutions should formulate and implement soft loan policies to induce the private investors to use low carbon emission technologies.