Impact of economic growth and environmental sustainability on carbon emission in selected South Asian countries : a panel ARDL model analysis

Abstract

Rising CO2 emissions in South Asian economies pose significant environmental challenges, driven by industrialization, economic progress, foreign direct investment (FDI), and agricultural productivity. This study aims to examine the impact of economic development on CO2 emissions and explore influence of GDP per capita, FDI, industrialization (INDS), and agricultural productivity (AGVAD) on emissions in the short and long run, and examination presence of the Environmental Kuznets Curve (EKC) in selected South Asian countries over the past 40 years. Using a quantitative approach, panel ARDL model through Pool Mean Group (PMG) estimator is employed, justified by the failure of Dynamic Fixed Effects and Mean Group estimators, balancing long run homogeneity with short run heterogeneity. Short run findings reveal insignificant effects, with agricultural productivity, industrialization, and FDI reducing emissions by 1.92%, 1,89%, 0.98%, respectively, while agricultural and FDI and industrial FDI show negligible impacts, highlighting weak sectoral dynamics. The GDP squared term provides no EKC support, and the ECT of interaction model’s indicates weak convergence. Long run findings highlight sectoral influences, with agricultural productivity and FDI the result further demonstrate the increasing of emissions by 1.18% due to intensified agricultural practices, while industrialization and FDI reduces emissions by 6.70% reflecting green industrial technologies. FDI showed significantly increase emission by 141.15%, indicating a pollution haven effect, while GDP squared lacks EKC support. The significant ECT suggests a 19.32% adjustment speed toward equilibrium. These results underscore the need targeted policies to regulate agricultural FDI, promote green industrial FDI, and implement structural changes to mitigate emissions, as economic growth alone does not reduce CO2 emissions. Policymakers should prioritize sustainable agriculture and stringent FDI regulations to address South Asia’s environmental challenges effectively.