This study explores the asymmetric effects of both aggregate and disaggregate forms of energy consumption along with economic growth on environmental quality for Pakistan covering the period from 1971 to 2014. We have employed unit root test with breaks for stationary checks, BDS test for nonlinearity check and nonlinear autoregressive distributed lag (NARDL) approach for assessing the asymmetric co-integrating relationships among the variables by decomposing them into positive and negative shocks. The empirical findings for aggregate consumption reveal that only negative shocks have a significant impact on ecological footprint. Similarly, different sources of energy consumption have diverse asymmetric effects on ecological footprint. The positive (negative) shocks to oil and gas consumption increase (decrease) ecological footprint. Thus, an increase in oil consumption has a deteriorating impact on environmental quality while a decrease in gas consumption has a favorable impact on environmental quality. The asymmetric relationships also hold between coal consumption, electricity consumption, and ecological footprint. The positive shocks to coal and electricity consumption are negatively related with environmental quality while negative shocks are positively related with environmental quality.
The role of financial development for the environment has been extensively debated but the empirical results largely remain inconclusive. Empirical studies generally assume symmetric relationships, which can produce biased results. This study investigates the role of asymmetries in shaping the relationship of financial development (FD) with the environment by employing nonlinear autoregressive distributed lag (NARDL) model over the period 1972-2018. The structural unit root test of Zivot and Andrews indicates that all variables are integrated of order one and bound tests confirm long run relationship between the variables. The results validate the asymmetric association between FD and the environment as CO 2 emissions are largely affected by negative shocks in FD in the short and long run. The dynamic multiplier analysis also supports the results by showing the dominance of a higher impact of a negative component of FD on carbon emissions than a positive component. This study concludes that assuming the symmetric effect of FD on CO 2 emissions might be misleading. The study suggests that the policy makers may strive to achieve high growth rates using environmentally friendly financial development. Moreover, the negative asymmetric impact of FD needs to be considered in the development of financial sector.
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