How special economic zones drive sustainable development in Pakistan: insights from a novel dynamic autoregressive distributed lag simulation

Special economic zones (SEZs), a prominent place-base-policy and source of industrialization, have been extensively studied in the context of a firm’s performance, economic growth, technological innovation, and regional development, highlighting the factors contributing to their success. However, their impact on sustainable development (SD), measured by zone objectives and targeted sectors, and Pakistan's environmental sustainability (ES) remain unexplored. This study empirically examines weather SEZs promote SD and ES by controlling for nonrenewable energy (NRE), clean energy consumption, and defence expenditure (DF). Utilizing dynamic ARDL simulation based on the theory of agglomeration, the findings confirm that SEZs and RE are a crucial factor in achieving Pakistan’s SD and ES by reducing both CO₂ emission and ecological footprint. In contrast, due to their adverse influence, NRE and DF obstruct sustainable development in Pakistan. Building on these results, the importance of a "stick-and-carrot" approach emerges as a vital strategy for promoting SD. This policy framework offers valuable insights for emerging and developing countries that heavily rely on SEZs but often lack adequate support systems. The findings from this study extend beyond Pakistan and emphasize the need for a coordinated strategy that integrates targeted government spending with strong environmental policies. By prioritizing innovation and expanding SEZs and renewable energy resources, nations can more effectively address the dual challenges of SD and ES. Ultimately, the implications of this study are significant for shaping global environmental sustainability efforts.