FOREIGN DIRECT INVESTMENT, GOVERNMENT SPENDING AND ENVIRONMENTAL QUALITY IN PAKISTAN

Abstract

The study focuses on exploring the effects of Foreign Direct Investment (FDI) and government spending on environmental degradation in Pakistan. For empirical analysis, the data was collected from the World Bank Development Indicators and Economic Surveys of Pakistan. The regression technique of Auto Regressive Distributed Lag (ARDL) and Bound Test are adopted for the empirical analysis. Bound test confirmed the existence of long-term relationship. The outcomes of the regression analysis reveal that; FDI and government spending are holding damaging effects on the environmental degradation. In case of control variables, mixed results are found. The conclusion is clearly drawn from the findings that FDI which is mostly machinery oriented so do the government spending tend to damage the environment. As a policy option, it is recommended to invest on environmental rehabilitation in-line with the FDI and government spending which could not be adjourned due to carrying damaging role towards the environment quality. However, better management and latest technology together with investment on restoration of the environment is felt to be an appropriate strategy to have realized the macroeconomic objectives coupled with better state of environment.