Asymmetric Effect of Innovation on Environmental Quality Based on Environmental Kuznets Curve: A Novel Approach

Environmental technologies and trade openness have distinct effects on environmental quality, and they are strongly associated with income and economic growth. The study looks at how trade openness impacts environmental quality in OIC countries between 1980 and 2023 using a range of environmental variables. A new methodology nonlinear autoregressive distributed lags (NARDL) is applied to resolve the issue of homogeneity and heterogeneity. The research has employed various carbon dioxide (CO2) proxies as measures of environmental quality, and a novel variable aims to address environmental issues in emerging nations such as Pakistan within a contemporary framework. Our research, which involved creating an index and applying Principal Component Analysis (PCA), demonstrates that in developing nations when environmental pollution occurs, the EKC has an Inverted-U form (CO2). The results of the NARDL technique demonstrate a strong positive association between CO2 and trade openness, environmental technology innovation (ENT), and economic growth. Furthermore, this study investigated nonlinearities not found in earlier studies and demonstrated some misleading decisions. Our results validate the existence of an Inverted-U-shaped EKC when CO2 is used as an environmental indicator in poor countries such as Pakistan. Ultimately, the argument is made that if developing countries continue their policies of economic openness, energy sector reforms, and renewable energy use, they will be able to use the increased cash to address environmental concerns.