An analysis of foreign aid and environmental degradation in Pakistan using the ARDL bounds testing technique (1972-2013)

The paper examines the relationship among foreign aid, per capita GDP, energy consumption, foreign direct investment and carbon emissions in Pakistan. Autoregressive distributed lag (ARDL) bounds testing technique is used for empirically testing using annual data from 1972 to 2013. The study uses carbon dioxide emission (CO₂) as an indicator of environment quality. The two components of foreign aid (foreign loans and foreign grants) are used to measure the environmental impact of foreign assistance in Pakistan. The study finds that energy consumption, per capita GDP and FDI contribute positively to raise the carbon emissions in the country. Furthermore, foreign loans and grants are also found significant contributors to the degradation of environmental quality in case of Pakistan. Similarly, the short run results of the model indicate that the signs of the coefficients are consistent with the long run estimates. On the basis of its findings, the study suggests that effective policies be followed for reducing (CO₂) emissions along with regulating FDI-environment and per capita GDP-environment relationship