Government Expenditure and CO₂ Emissions in Pakistan: An Empirical Analysis

Abstract

The research analyzes short-run and long-run relationship between government expenditure and CO₂ emissions per capita in Pakistan from 1990 to 2020. It uses ARDL Bounds test to check cointegration among CO₂ emissions, government expenditure, GDP per capita, Energy use and Trade openness. All variables are I(1) integration. F-Bound statistics 8.31 exceeds one percent finite sample upper critical bound establishing robust cointegration. Government expenditure (coefficient 0.0542, p-value <0.05) shows that it has positive and significant long-run effect on CO₂ emissions. It means that one percent increase in expenditure to GDP ratio is associated with 5.4 percent(approximately) increase in CO₂ per capita emissions. Energy use per capita is the influential factor among them (elasticity= 2.44, p-value< 0.01). trade openness has small negative and significant effect ( -0.010, p<0.05) and GDP per capita is statistically insignificant. The error correction coefficient -0.603 (p<0.01) indicates that about 60 percent of short run deviation are corrected annually. CUSUM test confirms that parameters are stable. CUSUM sq tells us possible variance instability from around 2015 onwards, which may be the reason of macro fiscal changes due to CPEC period. This is acknowledged as limitation of this research. The findings suggest that environmental criteria should be integrated into Pakistan’s fiscal policy.