IMPACT OF MACRO ECONOMIC

DETERMINANTS ON
ENVIRONMENT: EVIDENCES
FROM SOUTH EAST ASIAN
REGION

Present by:
NOOR-UL-AIN
KHAN
MSCF-09
 INTRODUCTION
Ameer and Munir (2016) said that humanity and economy can grow
without effecting nature.

According to Human Development Report (2015), economic growth and

population effects the various environmental factors like carbon dioxide,
sulfur dioxide and also damaging the natural resources.

Growing energy consumption in conjunction with environmental threats

poses a practical challenge along the globe (Bekhet and Yasmin, 2017).

Countries are facing double challenges ; on one side they have to

maintain the domestic energy demand and on the other side they have to
control emissions.
 RESEARCH PROBLEM
Pakistan has steadily moved from agricultural growth economy towards industrial growth economy.
This industrial growth has increased the demand of energy which in turn making the countrys
environment more polluted. Further more, Co2 emission is increasing and the country is facing
opposing effects of environment change (Shahzad et al., 2017).

According to the Global Climate Risk Index (2015) Pakistan is also included among those top ten
countries which is badly affected by environment change.

Pakistan is considered in developing countries, specifically in those republics who fall in low middle
income group. It has been facing worst energy crisis for the past few years and its energy demand
is continuously increasing with economic and population growth. While, Pakistans financial sector
has shown a notable growth due to financial reforms (Komal and Abbas, 2015).

Macro-economic variables have strong impact on environment. While Carbon dioxide contributes
about 58% of the total green house emissions of the world. Globally carbon emission is increasing
at a higher rate. (Zaman et al., 2015). So, it is necessary to find out the impact of macro economic
variables on environment (CO2 emission) in South East Asian region.

As, trade openness increases, the utilization of fuels also enhances due to their heavy consumption
in transport and energy (Ameer and Ummalla, 2016).
 LITERATURE REVIEW
Many researchers investigated the effect of economic growth on carbon dioxide
emission. The findings of the studies showed that pollution and income variables
has long run co-integration in time series, and panel data suggested that air
emission increase as income increases (Abdulai and Ramcke, 2009; Akbostanci
et al., 2009). While, some researchers had found that the carbon dioxide
emission reduces as the income per capita grows (Narayan et al., 2010).
In many high level-income countries free trade had insignificant effect on carbon
dioxide emissions but in low-level income countries free trade has significant
impact on CO2 emissions.
Trade openness effects environment in three ways: technology effect, scale
effect and composition effect (Antweiler and Copeland, 2001).
Furthermore, it is said that the net effect of trade openness is ambiguous
because it depends which effect dominant on environment from all of three.
Usually, composition and scale effects are dominant and both have adverse
effect on environment (Shahzad et al., 2017).
When people migrate from rural areas to urban areas they consume more
energy which cause environmental pollution (Chandran and Tand, 2013; Kasi
and Sami, 2016).
 LITERATURE REVIEW
Definition of key constructs
Names, definitions, and sources.
Variables Definition Sourc
(Measurement) es
Energy consumption (kt Utilizing primary energy that is equal to native production WDI
of oil equivalent) including imports and stock changes, and excluding
exports and fuel supplied to aircraft and ships transport.

Gross Domestic Product It refers to collective gross value added by all local WDI
(Current US dollar) manufacturers in the country including product taxes and
excluding subsidies not included in value of the products.
Urbanization (% of urban People residing in urban areas as percentage of total WDI
population in total population of the country.
population)
Financial Development It means financial capital granted to private sector, i.e. WDI
(Domestic credit to through loans, trade credits, purchases of non-equity
private sector as % of securities, and other accounts receivable that setup a
GDP) claim for reimbursement.
Trade Openness (Trade It refers to enrollment in secondary education in all WDI
as % of GDP) programs, regardless of age.
CO2 emissions (metric Co2 emissions reflects energy related human activities. WDI
tons per capita)
 RESEARCH GAP AND THE
SIGNIFICANCE OF THE STUDY

RESEARCH GAP
Existing literature shows that many researchers have focused on the relationship
of economic growth and energy consumption or on the relationship of economic
growth and environmental pollution, but only few numbers of studies has
analyzed these two relationships in same framework. More over, we have added
three macro economics variables in case of South East Asian region: financial
development, trade openness and urbanization.
However, according to my best knowledge, it is noticed that limited number of
studies available on this issue in case of South East Asian region.
SIGNIFICANCE
As, Pakistan and China are going to start their various energy base projects in
Pakistan. So, this study will help to fulfill the gap in recent studies by providing
fresh and additional evidences related to the impact of macro-economic
determinants on environment by using carbon dioxide emission as a proxy.
This study will help the policy makers in making policies and plans related to
economic, social and most importantly in environmental investment projects. It
will indicate them to invest more in clean energy projects by analyzing high
technology and innovation element in them.
OBJECTIVES AND RESEARCH
QUESTIONS

OBJECTIVES

The main objectives of this study are:

To examine the relationship and causality among CO 2 emissions, energy

consumption, economic growth, financial development, urbanization and

trade openness in one framework.
To give suggestions to policy makers to develop comprehensive energy

policies to attain long term sustainability in CPEC projects.

RESEARCH QUESTIONS

What is the effect of macro-economic variables (energy consumption,

economic growth, financial development, urbanization and trade
openness) on environment (Co2 emissions)?
Are CO2 emissions and other macro-economic variables (energy
consumption, economic growth, financial development, urbanization and
trade openness) correlated in case of SEA?
 FRAME WORK

MACRO ECONOMICS
DETERMINANTS

ENERGY
CONSUMPTION

ECONOMIC GROWTH
CO2 EMISSIONS
FINANCIAL
DEVELOPMENT

TRADE OPENNESS

URBANIZATION
 HYPOTHESIS
Following are the hypothesis which have been constructed
from model.
H1: Energy consumption has significant impact on CO 2

emission.
H2: Economic growth has significant effect on CO emission
2

H3: Financial Development has significant effect on CO 2

emission.
H4: Trade openness has significant effect on CO emission.
2

H5: Urbanization has significant effect on CO emission.

2

H6: All macro economic determinants has significant

impact on environment.
 METHODOLOGY

Research Method Quantitative technique

Population SOUTH EAST ASIAN REGION
(CHINA, INDIA, PAKISTAN),
Bilal et al., (2016).
Sample Size Annual data from time period
of 1971 to 2015
Data Collection World Development
Indicators (WDI)
Instrumental variable Time series data (Dickey
estimation technique Fuller Test, unit root tests)
Panel data analysis (Fixed
Effect , Random Effect,
Housman Test ).
 PROSPECTIVE RESULTS
Following results are concluded from previous research. Our study may show similar results
or may show contrary results from it.
In previous studies it is cleared that macro-economic variables have strong impact on

CO2 emission.
As, the level of income of people increase, they consume more energy due to which CO 2

emission increase.
New technology reduces the consumption of energy due to which CO 2 emissions

decreased.
While, trade openness also effects CO 2 emissions due to use of more fuel. When more

fuel consume than energy consumption increase and it make the environment polluted.
Furthermore, it is indicated that the relationship between free trade and environment is

ambiguous as it depends on the distribution of the comparative advantages among

countries (Shahzad et al., 2017).
Both trade openness and financial development have positive impact on carbon emission

both in short and long run (Shahzad et al., 2017; Nasir and Rehman, 2011). While, some
studies showed trade openness has negative impact on environment (Shahbaz et al.,
2012).
Previous studies results indicated that population growth, energy sector has a significant

impact on CO2 emission (Cole and Neumayer, 2004; Feng and Lantz, 2006, Mason 2011).
 IMPLEMENTATIONS

While for policy makers this research is so helpful. As,

they can make policies and take decisions to invest in
those projects who are willing to use modern technology
and have taken remedial measures to save environment
and economy.

This research can play a role in making environmental

and economical reforms specially in case of SEA region.
Q&A