Extending the Solow Growth Paradigm in Pakistan: The Dynamic Role of Digitalization, Green Investment, and Institutional Quality in Sustainable Economic Growth

Authors

https://doi.org/10.48313/iee.v1i4.67

Abstract

Digitalization, environmental transformation, institutional governance, and global integration increasingly shape economic growth in developing economies. This study examines the effects of digital capital, green investment, human and physical capital, Institutional Quality (IQ), and Trade Openness (TO) on Pakistan’s economic growth from 2000 to 2024. Grounded in the extended Solow Growth Model, which incorporates digital transformation, environmental investment, and institutional performance alongside traditional growth factors, the study employs the ARDL bounds testing approach and an error-correction model to analyze long-run and short-run dynamics. The long-run ARDL results reveal that TO, digital capital, green investment, and physical capital exert significant negative effects on growth, whereas IQ positively influences growth, and human capital shows a weak positive effect. In the short run, lagged digital capital, IQ, TO, and lagged physical capital significantly enhance growth, while green investment and human capital remain insignificant. The strongly negative and significant ECM coefficient confirms rapid adjustment toward the long-run equilibrium. Granger causality findings further indicate that digital capital, green investment, physical capital, and TO cause economic growth unidirectionally. Overall, the findings highlight the critical roles of IQ, digital readiness, and external sector dynamics in shaping Pakistan’s growth trajectory, emphasizing the need for efficient capital allocation, stronger export competitiveness, and better integration of green and digital investments into productive sectors.

Keywords:

Institutional quality, Green investment, Digital capital, Economic growth, Granger causality, ARDL, Pakistan

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Published

2025-12-26

Issue

Vol. 1 No. 4 (2025): Innovations in Environmental Economics

Section

Articles

How to Cite

Extending the Solow Growth Paradigm in Pakistan: The Dynamic Role of Digitalization, Green Investment, and Institutional Quality in Sustainable Economic Growth. (2025). Innovations in Environmental Economics , 1(4), 339–354. https://doi.org/10.48313/iee.v1i4.67

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