Environmental quality and the asymmetrical nonlinear consequences of energy consumption, trade openness and economic development: prospects for environmental management and carbon neutrality

Economic expansion gives rise to modern and energy-efficient technologies and, thus, contributes to a decline in energy usage. Developing countries, including Pakistan, require tremendous efforts to sustain economic growth. However, to attain economic growth, these countries have to cope with greenhouse gas (GHG) emissions and other environmental problems. This research focuses primarily on the asymmetric impacts of energy consumption and economic growth on Pakistan's environmental quality. Accordingly, secondary data spanning from 1971 to 2018 was used, and carbon dioxide emission (CO2) was considered a target variable (a proxy for environmental quality), whereas energy consumption (E) and gross domestic product (GDP) as a proxy for economic growth, and trade accessibility (TR) and foreign direct investment (FDI) as control variables. The nonlinear autoregressive distributed lag (NARDL) approach is used to verify the asymmetric co-integration between the variables selected. Moreover, to examine data stationarity and nonlinearity, we used the Zivot-Andrews structural break unit root and BDS tests, respectively. The findings confirmed the asymmetric and symmetric co-integrations among the considered variables. In addition, the causality analysis reveals that only negative shocks to TR have an effect on CO2 emissions. Similarly, negative shocks to FDI asymmetrically cause CO2 emissions. Meanwhile, GDP symmetrically affects CO2 emissions. Finally, a neutral causal response was observed between E and CO2 emissions. These findings have policy implications in terms of environmental management and carbon neutrality, and they serve as a baseline for future research.