THE INTERPLAY OF TECHNOLOGICAL INNOVATION, EXCHANGE RATE, INCOME INEQUALITY, NATURAL RESOURCES ON CO₂ EMISSIONS IN PAKISTAN

Abstract

This study investigates the dynamic relationship between technological innovation, income inequality, exchange rate, natural resources and inflation on carbon emissions (CO₂) in Pakistan over the period 1995 to 2019, using annual time series data. The analysis begins with stationarity testing through the Augmented Dickey-Fuller (ADF) test, confirming that variables are integrated of order one, I(1). Subsequently, the Johansen Cointegration Test is employed to examine the long-run relationship among the variables. The results confirm the existence of three cointegrating equation, indicating a stable long-run equilibrium relationship between CO₂ emissions and the independent variables. Empirical findings reveal that technological innovation, exchange rate and inflation have positive and significant influence on CO2 emissions in the long run. While, income inequality has a negative and statistically significant relationship with CO2 emissions in the long run. In the short run, Technological innovation has positive but insignificant, exchange rate and inflation have significant positive effect, natural resources has negative insignificant effect on CO2 emission. Therefore, policymakers in Pakistan should consider energy-efficient innovations, manage inflation, and implement inclusive growth strategies to balance environmental and social goals.