Green Finance For Sustainable Growth: Analyzing The Environmental Impact Of Financial Development In Pakistan

Abstract

This study examines the relationship between financial development, institutional quality, and environmental degradation in Pakistan. Utilizing data from Pakistan from 2014 to 2024, the research investigates how financial development impacts environmental welfare, with a particular focus on energy use, CO2 emissions, greenhouse gas emissions, and natural resource depletion. The analysis also explores the role of institutional quality in shaping these relationships. The study finds that financial development has a curvilinear effect on environmental welfare, suggesting an initial increase in environmental degradation followed by a decrease as countries develop economically. Furthermore, high-quality institutions are shown to mitigate environmental harm by promoting sustainable financial practices. The research highlights the need for policies that encourage green finance and environmental sustainability, emphasizing the importance of institutional frameworks in curbing degradation. The findings are particularly relevant for Pakistan, where rapid financial development and institutional strengthening are essential for balancing economic growth with environmental preservation. This study provides practical implications for policymakers in Pakistan to guide the integration of financial and environmental goals in the pursuit of sustainable development.

Keywords: Financial development; environment degradation; CO₂ emissions; economic development; foreign direct investment