Assessing the Impact of Green Environmental Policy Stringency on Eco-Innovation and Green Finance in Pakistan: A Quantile Autoregressive Distributed Lag (QARDL) Analysis for Sustainability

Environmental policy stringency, eco-innovation, and green finance play key roles in advancing sustainability, particularly in low- and middle-income countries such as Pakistan. Using annual data from 1990 to 2020, this study employs a quantile autoregressive distributed lag (QARDL) approach to explore the effects across different quantiles. The results reveal a generally negative, quantile-specific relationship between eco-innovation and ecological footprints. At lower quantiles, a 1% increase in green finance is associated with a reduction in ecological footprints ranging from 1% to 4%, demonstrating a beneficial, albeit asymmetric, relationship. As the quantiles increase, the effect of green finance strengthens, with reductions in ecological footprints reaching up to 7% at higher quantiles. Furthermore, stringent environmental policies show a more pronounced impact at higher quantiles, where a 1% increase in policy stringency leads to a reduction in ecological footprints of 5% to 8%. These findings underscore the significance of robust environmental policies, eco-innovation, and green finance as effective mechanisms for reducing ecological impacts and promoting sustainability. This study provides valuable insights for policymakers to strategize on enhancing investments in green financing and implementing stringent environmental regulations, particularly targeting industries and sectors with substantial ecological impacts. Such measures can effectively mitigate environmental degradation by adopting eco-innovation and encouraging sustainable practices, especially in areas provoking acute ecological pressures.