PATHWAY TO ENVIRONMENTAL SUSTAINABILITY IN PAKISTAN: EVIDENCE FROM LMDI DECOMPOSITION ANALYSIS

Abstract

In recent time environmentalists and economists are more concerned about environment friendly growth rather than simple growth. The environmental consequences of anthropogenic economic growth are causing climate change around the globe. This paper empirically test the Environmental Kuznets Curve (EKC) hypothesis for Pakistan over the period 1970-2016 by employing the ARDL Bounds testing methodology in conjunction with logarithmic Mean Divisia Index (LMDI) decomposition approach to disentangle emission level from economic growth. Empirical results validate the EKC exist in Pakistan both in the long run and in the short run over sampled period in Pakistan. The empirical results of decomposition analysis shows that the population growth effect and economic growth effect are the main driving forces of positive changes in CO2 emissions. CO2 emissions are only minimized with energy intensity factor. According to the policy recommendations, replacing the conventional energy sources with renewable energy technology is the best strategy for achieving long-term economic growth in Pakistan without compromise for environmental sustainability.