Governance, foreign investment, and growth: the impact of governance indicators, foreign direct investment, economic expansion, and industrialization on carbon emissions

Pakistan has considerable obstacles to political instability, insufficient regulations, and corruption, which hinder the efficient execution of environmental regulations. This research investigates the influence of governance indicators on environmental sustainability in Pakistan by considering data from 1996 to 2022. This study further examined the causal connection between economic development, inbound FDI, and environmental sustainability, with a particular focus on the impact of the industrial sector on environmental conditions. The study results demonstrate a positive relationship between political instability and carbon emissions, indicating a tendency for rent-seeking behavior. Additionally, the presence of incoming FDI has a detrimental impact on environmental sustainability, supporting the pollution haven theory. On the contrary, implementing effective measures to combat corruption has a beneficial effect on promoting environmentally sustainable economic development, as it leads to a reduction in carbon emissions. It is worth noting, however, that the link between economic growth and carbon emissions exhibits a positive relationship. This research highlights the significance of governance and economic policies in influencing environmental sustainability in Pakistan, providing significant insights for policymakers aiming to facilitate sustainable development.