Modeling the relationship between gross capital formation and CO 2 (a)symmetrically in the case of Pakistan: an empirical analysis through NARDL approach

Abstract

This paper tries to ensure the relationship between gross capital formation (GCF) and carbon dioxide (CO₂) emissions in the case of Pakistan for the period 1980–2016 by employing Non-Linear Auto Regressive Distribution Lag (NARDL) model under the expansion of Environmental Kuznets hypothesis (EKC) while controlling for coal and oil consumption variables as a potential factors of CO₂ emissions. Our main objective is to check whether or not the effect of changes in GCF on CO₂ emissions is asymmetric or symmetric for Pakistan that is among one of the main contributors to CO₂ emissions in Asia, as the emissions were grown by 15.6 million tonnes or 8.5% increase in percentage terms in 2016. Our result confirms the existence of an asymmetric effect of GCF shocks on CO₂ emissions both in the short and long-terms. Moreover, our empirical finding also suggests that coal and oil consumptions have a significant contribution to CO₂ emissions both in the short and long-terms. Further, our results also significantly support the existence of the EKC hypothesis both in the long and short-terms. That confirms the inverted U-shaped connection among per capita growth and CO₂ emissions in Pakistan. In the last, our study suggests that the implementation and use of clean energies and technologies are vital for controlling pollution in Pakistan.

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