Nexus between carbon emission, financial development, and access to electricity: Incorporating the role of natural resources and population growth

• Published date: 01 February 2021
• Author: Noor Hashim Khan,Yanbing Ju, Danish,Zahid Latif,Khalid Khan
• Date: 01 February 2021
• DOI: http://doi.org/10.1002/pa.2131

ACADEMIC PAPER

Nexus between carbon emission, financial development, and

access to electricity: Incorporating the role of natural resources

and population growth

Noor Hashim Khan

1

| Yanbing Ju

1

| Danish

2

| Zahid Latif

3

| Khalid Khan

4

1

School of Management and Economics,

Beijing Institute of Technology, Beijing, China

2

School of Economics and Trade, Guangdong

University of Foreign Studies, Guangzhou,

China

3

School of Economics and Management

Sciences, Beijing University of Posts and

Telecommunications (BUPT), Beijing, China

4

Department of Economics, Lasbela University

of Agriculture Water Marine Sciences

(LUAWMS), Uthal, Pakistan

Correspondence

Noor Hashim Khan and Danish, School of

Management and Economics, Beijing Institute

of Technology, 10081 Beijing, China.

Email: noor.dawar@bit.edu.cn (K. N. H.) and

khan.danishkhan@hotmail.com (D)

This study explores the nexus between financial development, access to electricity, and

CO

2

emissionsin Pakistan over the periodfrom 1990 to 2015, incorporating therole of

natural resources and population growth. We checked the stationarity of the data by

using three different unit root tests (ADF, Phillip Pesaran, and DG-FLS). Long- and

short-run elasticities have been determined through auto-regressive distributive lag

(ARDL) method. The empirical results confirmed that financial development and access

to electricity increase CO

2

emissionsand deteriorate the environmental quality. In addi-

tion, the population growth is responsible for growing CO

2

emissions in Pakistan, while

natural resources have insignificant relation with CO

2

emissions. Furthermore, bidirec-

tional causality exists between population growth and natural resources, whereas unidi-

rectional causality is detected among financial development and CO

2

emissions, natural

resources and population growth, and financial development and population growth.

The newly developed findings suggest helpful policy implications to adequately address

theissueofCO

2

emissionswithout compromisingeconomic development.

1|INTRODUCTION

Global warming is a pressing matter for the world, and knocking the

environmental researchers that it can put the human's life in danger.

Many scholars (Baek & Pride, 2014; Baloch, Danish, Meng, Zhang, &

Xu, 2018) contented that carbon dioxide (CO

2

) emissions are the main

factors of environmental warming. The inter-governmental panel of

climate change (IPCC) reported that due to climate changes, the gla-

ciers are melting, the sea level is rising, and earth's temperature has

increase which can abolish the coastal areas about 50% (Lau,

Choong, & Eng, 2014; Tsai, Chang, & Chang, 2016). The loss from

global warming will be much higher than the economic loss of first

and second world wars. From the last two decades, greenhouse gases

have increased rapidly, and CO

2

emission is the main culprit behind

this high growth. In case of Pakistan, the study of M. T. I. Khan, Ali,

and Ashfaq (2018) infers that the share of CO

2

emissions is about

60% among all the greenhouse gases. Furthermore, the CO

2

emissions

were 32,067 kt in 1980 and raised about 8–10% per year. Thus, in

2014, it has reached up to 158,000 kt. The leading cause of this radi-

cal upsurge is the primary energy supply.

Energy transition theory developed by Werthamer (1963) argues that

there is a “ladder of fuel preference”from high-quality fuels (like kero-

sene) to low-quality, less convenient fuels like biomass. Among the other

factors, energy consumption is the main cause of CO

2

emissions (Baloch,

Danish, & Meng, 2019). Overwhelming the utilization of energy can

reduce CO

2

emissions (Martinho, 2016); however, the decrease in energy

supply hurts the development and growth process of a country. Pakistan

is a developing and one of the populous countries around the world. As a

populous and growing country, it needs high energy production. Among

the required energy, electricity is the most valuable energy that needs for

the smooth running of the state economy (Khan, Ju, Baloch, & Uddin,

2019). Meanwhile, Pakistan facing a problem of electricity shortage. The

energy crises, particularly the crises of electricity, have been predicted to

be more vulnerable if not addressed in time and appropriately.

Theliteratureprovidesmixevidences regarding the nexus between

energy consumption, financial development (FD), and CO

2

emissions. For

instance, Charfeddine and Kahia (2019) confirmed a positive and signifi-

cant relationship between FD and CO

2

; they stated that FD has a positive

and weak impact on environmental quality. Jalil and Feridun (2011)

established a study for China and reported a negative linkage between FD

Received: 21 November 2019 Revised: 22 January 2020 Accepted: 8 March 2020

DOI: 10.1002/pa.2131

J Public Affairs. 2021;21:e2131. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of10

https://doi.org/10.1002/pa.2131