Governance, financial development, and environmental degradation: evidence from symmetric and asymmetric ARDL

The relationship between economic growth and environmental degradation has been exhaustively explored from a theoretical and empirical perspective. However, most of the studies explore symmetric relationships, and none of these studies explicitly address the role of governance and financial development. Hence, this study uses both symmetric and asymmetric methods to investigate the linkage between governance, financial development, economic growth, and CO₂ emissions in Pakistan over 1990–2018. The empirical findings show that governance supports environmental sustainability by reducing CO₂ emissions. Moreover, adverse shocks in governance increase CO₂ emissions. However, the findings of linear and nonlinear ARDL revealed that financial development increases environmental degradation by exacerbating CO₂ emissions. Moreover, the results validated the Environment Kuznets Curve in Pakistan as more income reduces emissions. Our empirical results have several policy implications for environmental sustainability and sustainable development.