Asymmetric Impacts of Financial Development, Foreign Investment, and Trade Openness on Renewable Energy Consumption in Pakistan: A Nonlinear ARDL Approach

Résumé fourni par la source

The transition to renewable energy remains a critical challenge for Pakistan because of rising energy demand, financial constraints, and continued dependence on conventional energy sources. Despite growing interest in renewable energy determinants, the asymmetric transmission of economic shocks remains insufficiently explored, particularly in emerging economies such as Pakistan. The present study examines the asymmetric effects of financial development, foreign direct investment, trade openness, economic growth, and gross fixed capital formation on renewable energy consumption in Pakistan. Using annual data from 1990-2024, the study applies the Nonlinear Autoregressive Distributed Lag (NARDL) approach to investigate asymmetric short- and long-run relationships among the variables. The findings provide evidence of a stable long-run relationship between renewable energy consumption and its economic determinants. The results indicate significant asymmetric effects of financial and economic factors. Negative shocks in financial development significantly reduce renewable energy consumption, suggesting that deteriorating financial conditions may hinder renewable energy expansion. Positive foreign direct investment shocks negatively affect renewable energy consumption, indicating that foreign investment inflows may not have sufficiently supported renewable energy development. In contrast, positive changes in trade openness increase renewable energy consumption, reflecting the potential role of international integration and access to technology. Economic growth exhibits an asymmetric relationship with renewable energy consumption, suggesting that economic expansion has not yet translated into greater renewable energy adoption. The study emphasizes the importance of green finance mechanisms, environmentally oriented investment policies, and supportive trade strategies to accelerate Pakistan’s renewable energy transition.

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