The Rule of Law, Political Stability and Environmental Pollution: An Empirical Analysis of Institutional Quality and Environmental Sustainability for Pakistan
Abstract
The objective of this study is to investigate the impact of rule of law and political stability on environmental pollution in Pakistan controlling for economic growth, foreign direct investment, gross fixed capital formation and trade openness. The autoregressive distributed lag (ARDL) bounds-testing approach is employed to analyses time-series data from the World Development Indicators. Carbon dioxide emissions are a representation of environmental pollution, and rule of law and political stability reflect the quality of institutions. The unit-root findings show a combination of level and first-difference integration in the ARDL framework. We applied the bounds test for cointegration to verify the long-run relationship between environmental pollution, institutional quality and the macroeconomic variables. Meanwhile, stronger rule of law and political stability decrease carbon dioxide emissions significantly in the long-run estimates where legal enforcement, regulatory credibility, and continuity enshrined in laws are respectively found to facilitate environmental sustainability. The lower emissions are also correlated with economic growth, which suggests the presence of structural transformation and cleaner production. In contrast, foreign direct investment and trade openness aggravate environmental pollution, suggesting that investment and trade activities may be focused on energy intensive industries. The gross fixed capital formation has considerable effect. The recommendations are to strengthen the environmental institutions, enforcing national emission standards, screening foreign investment on green deposition and natural resources governance, along with promoting green trade while diverting capital towards renewable energy and low-carbon infrastructure in Pakistan.
Keywords: Rule of Law; Political Stability; Environmental Pollution; ARDL bounds testing
