Renewable Energy Transition, Climate Risk, and Development Finance: Evidence from Pakistan Using ARDL and Causality Analysis

Abstract

Abstract

This study examines the dynamic relationship between greenhouse gas emissions, climate‑related financial flows, and renewable energy development within Pakistan’s evolving development finance landscape. Focusing on Foreign Direct Investment (FDI), Official Development Assistance (ODA), trade openness, and bilateral and multilateral agreements, the analysis evaluates how these factors shape renewable energy capacity and influence the country’s transition toward cleaner energy. The study also considers the role of Clean Energy Standard policies and the broader implications of carbon emissions for economic growth. Using unit root tests, the Autoregressive Distributed Lag (ARDL) framework, and Granger causality analysis, and grounded in Green Growth Theory and the Environmental Kuznets Curve (EKC), the results show that ODA and trade positively affect renewable energy capacity in the long run, while FDI and CO2 emissions exert negative impacts. Short‑run findings highlight the immediate adverse effect of carbon emissions on renewable energy development. Bilateral and multilateral agreements consistently emerge as strong drivers of renewable energy expansion. Overall, the results indicate that Pakistan’s renewable energy transition is shaped by intertwined financial, policy, and environmental factors, underscoring the need for coordinated climate‑aligned development strategies.