Assessing the Impact of Market Supporting Institutions on Environmental Outcomes Empirical Evidence from Pakistan

There is a considerable debate on the impact of institutional quality including economic and political institutions on economic outcomes. Most of the existing discourse has focused only on their economic implications. This study, on the other hand, seeks to explore the role of market supporting institutions, measured by economic freedom, on environmental outcomes in Pakistan. While utilizing data for the period 2000–2020 and using ARDL bounds testing approach, we arrive at few important conclusions. The empirical results indicate that market supporting institutions such as economic freedom have strong negative impact on environmental degradation (measured by CO2 emissions per capita and CO2 emissions from electricity and heat production) in Pakistan. Importantly, the effect holds both in short-run as well as in the long-run, suggesting that the strength of market supporting institutions not only lowers environmental pollution in the country but it also mitigates the environmental degradation from electricity and heat production. The estimated results are robust through alternative estimation strategies. Ultimately, the study implies that the strength of market supporting institutions can be an eventual boon to the environmental outcomes of Pakistan’s economy.