Combined role of industrialization and urbanization in determining carbon neutrality: empirical story of Pakistan

A rapid process of industrialization, on the one hand, transformed the economies from agrarian to industrial societies to improve the living standards and welfare of people. On the other hand, the urbanized and industrialized economies have posed challenging threats to environmental sustainability. The query at hand is whether the growing environmental emissions are driven by industrialization and urbanization or not. This research aims to empirically examine the combined role of industrialization and urbanization in achieving carbon neutrality in Pakistan by considering foreign direct investment and economic growth as control variables in the model. The core empirical results are the following: firstly, industrialization and economic growth exhibit negative but statistically insignificant impacts on CO₂ emissions, imparting a neutral role in determining the environmental degradation in Pakistan. Secondly, urbanization and foreign direct investment disclose positive and statistically significant (at 1% level of significance) impacts on CO₂ emissions, manifesting an environmental degradation driving impact in the country. Thirdly, given the slope coefficients of urbanization and foreign direct investment (0.058 and 0.035), urbanization proved to be a stronger driver than foreign direct investment. Finally, foreign direct investment is revealed to make the Pakistani economy a “Pollution Haven” for the foreign enterprises in the country. Based on empirical results, none of the variables predicted the support for carbon neutrality in Pakistan.