Environmental Kuznets Curve hypothesis in Pakistan: Cointegration and Granger causality

The paper is an effort to fill the gap in the energy literature with a comprehensive country study of Pakistan. We investigate the relationship between CO ₂ emissions, energy consumption, economic growth and trade openness in Pakistan over the period of 1971-2009. Bounds test for cointegration and Granger causality approach are employed for the empirical analysis. The result suggests that there exists a long-run relationship among the variables and the Environmental Kuznets Curve (EKC) hypothesis is supported. The significant existence of EKC shows the country's effort to condense CO ₂ emissions and indicates certain achievement of controlling environmental degradation in Pakistan. Furthermore, we find a one-way causal relationship running from economic growth to CO ₂ emissions. Energy consumption increases CO ₂ emissions both in the short and long runs. Trade openness reduces CO ₂ emissions in the long run but it is insignificant in the short run. In addition, the change of CO ₂ emissions from short run to the long span of time is corrected by about 10% yearly.