Impacts of Monetary Policy and Exchange Rate on Green Investment in Pakistan

Abstract

This study aims to analyze the role of the domestic and foreign financial market in the determination of Green Investment for Pakistan. For sustainable growth, it is essential to check the domestic impacts of monetary policy and GDP with green investment. While the exchange rate and FDI are used to examine the foreign financial impacts on green investment. The model takes Green Investment as a dependent variable while Broad money, interest rate, GDP, foreign direct investment, and exchange rate as the independent variables. The annual time series data have been used from 1972 to 2018. The data have been taken from international financial statistics (IFS) and world development indicators (WDI). The ARDL and error correction model (ECM) approach has been used to find out the long-run and short-run relationship respectively. The results show that monetary policy variables, GDP, FDI, and the bilateral exchange rates are significant in the long run as well as in the short run. The analysis also shows that the speed of adjustment is 86 percent from disequilibrium for Green investment of the previous year to the current year.