Environmental and Economic Drivers of Inclusive Growth: An ARDL Analysis for Pakistan

Abstract

This research explores the relationship between macroeconomic indicators and inclusive growth in Pakistan for 1990-2023 with the Gini coefficient being used as a measure of income inequality. We applied the Autoregressive Distributed Lag (ARDL) model to capture both short- and long-run relationships between inclusive growth and the key macroeconomic variables of per capita income, foreign direct investment, gross fixed capital formation, urbanization, environmental quality and inflation. The results of this study suggest that per capita income and foreign direct investment lower income inequality, while environmental degradation and inflation increase income inequality. Urbanization and capital formation impact inclusive growth positively. The significant error correction term is indicative of long-run equilibrium. The analysis highlights the significance of interconnected macroeconomic policies which balance growth with environmental sustainability and inflation targeting so that fair development can occur in Pakistan.