Economic Growth and Decarbonization in Pakistan: A Time-Series Analysis of Carbon Intensity Drivers (1990–2023)

Abstract

This research explores the prominent macroeconomic and energy-associated factors of the carbon intensity of the GDP in Pakistan between 1990 and 2023. The critical indicator of the ability to gauge the environmental efficiency of economic growth is carbon intensity which is expressed as the kg of CO 2 equivalent/per PPP-adjusted GDP dollar. The analysis is the data on the carbon intensity (CI), trade openness (TO), and the use of renewable energy (REN), GDP per capita (GDPPC), and the intensity of energy use (EU), all measured in terms of annual rates instead of the past years, employing a time-series econometric model. The first order I(1) integration of variables is supported by a set of diagnostic tests and a consistent relationship at the long-run level between the two variables is determined by the graph presenting the Johansen cointegration test. The estimated long-run coefficients indicate that consumption of renewable energy and GDP per capita have considerable negative impacts on carbon intensity meaning that they have contributed to decoupling of emissions and the production of the economy. On the other hand, intensity demonstrates a positive, but less significant relationship with trade openness. A Vector Error Correction Model (VECM) reflects the short-run dynamics and the renewable energy changes are noted as a powerful short-term force. The model has been tested to ensure that the tests of serial correlation, normality and heteroskedasticity are sound, but the CUSUM of squares test raises a warning of possible parameter instability, which could be associated with significant changes in policy. The results suggest that further development of Pakistan should be pegged on the aggressively increasing the infrastructure of renewable energy, promoting cost-effective economies, and planning their trade policies in such a way that their impact on the environment will be limited. The research gives policy makers empirically based knowledge on how to align the economy of Pakistan with the commitments of climate change.