Socio-economic impact assessment of environmental degradation in Pakistan: fresh evidence from the Markov switching equilibrium correction model

Environmental degradation is a severe problem for all nations, especially for developing ones like Pakistan. For analysis purpose, this study employed two proxies of environmental degradation, i.e., carbon emission and ecological footprint as the explained variables during 1980-2017. In contrast, real GDP per capita, electricity consumption, financial development, urbanization, life expectancy rate, and fertility rate are used as independent variables. For the empirical analysis, Johnson co-integration, Markov switching equilibrium correction model (MS-ECM), and other second-generation econometric models have been used. Granger causality is also used to quantify the causal association among concern variables. MS-ECM results showed that there is U-shaped behaviour that holds for the case of ecological footprint and real GDP; on the other hand, inverted U-shaped behaviour has been seen between CO2 and real GDP. Study found negative association between electricity consumption and environmental degradation to save the environment. Study suggests that electricity production sector should be shifted from non-renewable to renewable energy (solar and wind) sources for sustainable future.