Consequence of FDI on CO₂ emissions in case of Pakistan

The study is an effort to explore the long-run consequences of foreign direct investment and capital formation on the environment. The study used the time series data of 1974-2010 in the case of Pakistan. For the analysis of environmental quality CO₂ is used as an indicator. To analyze the long run relationship among CO₂ emissions, overseas direct investment and capital formation along with other control variables, Autoregressive Distributed Lag model (ARDL) technique is applied. Results of the study authenticate that foreign direct investment damage the environmental quality. At the same time capital formation can bring back environmental quality by introducing environment friendly techniques of production. Short term dynamics of model suggest that the signs of the coefficients are same with the long run coefficients. Subsequent to the observed effects it is suggested that Pakistan must plan policies for the betterment of environment by encouraging capital formation and less pollutant foreign production techniques.