The moderating role of energy consumption in the relationship between trade openness and environmental degradation: evidence from Pakistan and China

Every country wants to accomplish the sustainable development goal. For this reason, each country protects the environment, expressing widespread concern over environmental degradation. Furthermore, trade is the most essential component of economic growth, and energy is the primary source of production and environmental degradation. Therefore, the study aims to investigate the moderating effect of energy consumption on the link between trade openness and environmental degradation in the case of China and Pakistan. It will utilise data from 1990 to 2020 and employ ARDL and Granger causality estimation techniques. This study revealed that energy consumption and GDP growth are constructive. At the same time, inflow, FDI, and trade openness have negative consequences on CO2 emission in China, while all the variables have positive effects on CO2 emission in the case of Pakistan. This study confirms the existence of the Environmental Kuznets Curve and the moderation effect of energy consumption in both countries. This study also found that there exists a one-way causality running from CO2 to energy consumption and trade openness to CO2 in the case of China. This study suggested focusing on screening and identifying environmentally friendly enterprises.