Financial Liberalization and CO2 Emissions: Evidence from Pakistan
Keywords:
Financial Liberalization, Carbon Dioxide Emission, Johansen Co-integration, VECM.Abstract
Pakistan is amongst those developing economies which are mostly affected by the climate
changes due high level of CO2 emission. The high level of CO2 emission in attributed to
industrial activities and liberalization of financial policies for the attainment of economic goals.
So keeping in view the disastrous environmental consequences, we investigate the cointegrating
relationship among financial liberalization, economic growth and CO2 emission via time series
data from 1980 to 2014 in Pakistan. We considered seven proxies such as exchange rates, trade
openness, foreign direct investment, money supply, deposit rate, lending rate and foreign
portfolio investment for construction of financial liberalization index through principal
component analysiswhereas, the economic growth is estimated through GDP per capita. The
results of Johansen test of Co-integration verified the existence of cointegrating relationship
among financial liberalization, economic growth and CO2 emission. Furthermore, VECM depicts
short term causal relationship between economic growth and carbon emission.
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