The Impact of Financial Development, Tourism, Population Density and Political Stability on Environmental Degradation in Case of Pakistan

This study examined the impact of financial development, tourism, population density and political stability on environmental degradation in Pakistan over the time 1986-2017. Data of these variables is taken from World Development Indicator (WDI), World Tourism Organization (WTO), International country risk guide (ICRG) database and federal bureau of Statistics of Pakistan. To investigate the findings, three separate models are constructed by using three different indicators of financial development. Firstly, Co-Integration among variables is confirmed through Bound test of Co-Integration. The result of this test reveals that co-integration among all the variables exists in the long run. Auto Regressive Distributed Lag (ARDL) technique is used to examine short run and long run estimates. Findings of the study concluded that in all the models financial development has considerable positive relationship with CO2 related pollution in the long run while in the short run results depend on which dimension of financial development is used. As, M2 has significantly negative impact on environmental degradation whereas, Population density has negatively significant role in explaining carbon dioxide emissions in the long run but it is positive and inconsequential in the short run. Tourism has negative and significant effect on environmental deterioration in case of Political stability has statistically significant and inverse relationship with CO2 emissions both in short and long run. These outcomes may also become fruitful for Government regarding decision making. The result recommends that Government should try to focus on financial development, tourism sector and political stability more keenly. Government should impose some restrictions on financial sector as, loans and finance should only be given for productive and environment friendly projects. Taxes should be imposed on most visited tourist’ places. Awareness among people regarding depreciation of environment should be promoted by different activities or programs conducted by Government.