Environmental Degradation, Quality of Institutions and Tourism: New Evidence from Pakistan

Abstract

This study explores the effects of tourism, quality of institutions and FDI on environmental degradation in Pakistan for the two time periods i.e. 1996-2017 and 2000-2017. Quality of institutions is included in the time period 2000-2017 which is adopted from world governance indicators but due to lack of the data it has not been included in second time (1999-2017). To find out the relationship among given variables, Ordinary Least Square (OLS) regression was carried out, moreover, Breusch-Godfrey Serial Correlation LM test, Heteroscedasticity Test and Histogram-Normality test were also applied to diagnose the econometric issues in the given models. The findings of the study revealed that tourism is significant and influential factor of environmental degradation in Pakistan. Similarly, foreign direct investment is also contributing in environmental degradation but its effect is insignificant for both time periods. On the other hand, an inverse relationship is observed between quality of institution and environmental degradation. The outcomes of the study suggest that environmental degradation can be overcome by increasing the quality of the institutions. Moreover, the government initiatives to attract foreign tourists by introducing new visa policy, which includes; electronic visa, on arrival visa and opening new avenues for tourists (e.g. Kartarpur Corridor and CPEC initiatives etc.) will have tremendous impact on the national economy. However, environmental degradation is the outcome of tourism, therefore, policy maker’s needs to consider the negative effects of tourism in addition to its positive effects on the economy.