Does financial instability increase environmental degradation? Fresh evidence from Pakistan

The present study explores the relationship between financial instability and environmental degradation within the multivariate framework using time series data over the period of 1971-2009 in case of Pakistan. The long run relationship is investigated by the ARDL bounds testing approach to cointegration, and error correction method (ECM) is applied to examine the short run dynamics. The stationary properties of the variables are investigated by applying Saikkonen and Lütkepohl unit root test. Empirical evidence confirms that there exists a long run relationship between both variables and financial instability increases environmental degradation.