Structural Change and Economic Dynamics 53 (2020) 257–266

Contents lists available at ScienceDirect

Structural Change and Economic Dynamics

journal homepage: www.elsevier.com/locate/strueco

The dynamic relationship between economic growth and life

expectancy: Contradictory role of energy consumption and financial
development in Pakistan
Zhaohua Wang a,b,c, Muhammad Mansoor Asghar a,b,c, Syed Anees Haider Zaidi a,d,
Kishwar Nawaz e, Bo Wang a,b,c,∗, Wehui Zhao a,b,c, Fengxing Xu a,b,c
a
School of Management and Economics, Beijing Institute of Technology, Beijing, 100081, China
b
Sustainable Developmeng and Inteligent Decision, Beijing Institute of Technology, Beijing, 100081, China
c
Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing, 100081, China
d
COMSATS University Islamabad, Sahiwal Campus, Pakistan
e
University of Orleans, Orléans, France

a r t i c l e i n f o a b s t r a c t

Article history: This paper tends to investigate the linkage between economic growth and life expectancy by considering
Received 7 January 2020 the potential role of financial development and energy consumption using data of Pakistan. Traditional as
Revised 4 March 2020
well as advanced unit root tests for observing the stationary properties of the variables were applied. For
Accepted 16 March 2020
exploring the cointegration levels among life expectancy and its determinants, ARDL bounds testing tech-
Available online 30 March 2020
nique in the existence of structural breaks which were stemming in the data has been investigated. The
Keywords: empirical results provide the confirmation for the presence of cointegration between the variables. Fur-
Economic growth ther, economic growth is positively associated with life expectancy. Financial development is revealing a
Life expectancy negative effect on life expectancy in the scenario of Pakistan. Energy consumption lowers life expectancy
Financial development via environmental degradation. Furthermore, this empirical analysis provides new insights to policymak-
Energy consumption ers for using financial development and energy consumption as economic tools to improve life expectancy
Pakistan
by directing energy and finance policies.
© 2020 Elsevier B.V. All rights reserved.

1. Introduction tion, poverty reduction, and ensuring maximum employment rate

In the current era, the most desirous thing to policymakers is
to achieve a high level of economic growth with a better qual-
ity of life. Traditionally, higher growth rates have led to rapid
economic development across the countries in the World. Due
to these reasons, the concerned stakeholders, including govern-
ing bodies and policymakers, are garnering best strategies for the
promotion of economic growth in their countries. According to
Todaro and Smith (2009), although during the time span of 1950–
1960 when most developing nations were fulfilling their growth
targets efficiently, but they were failed to translate the objectives
for better living conditions. Later on, priorities changed, and the
thinking of scholars and policymakers shifted towards better liv-
ing conditions and life expectancy. Instead of focusing just on the
rise in economic growth, the provision of good health and educa-
∗
Corresponding author.
E-mail address: 51022080@qq.com (B. Wang).
in the form of better living conditions are considered now manda-
tory objectives. It is also suggested by Kwakwa (2019) that the fo-
cus of governments should not be on enhancing economic growth
only, but they should also ensure better living conditions for their
inhabitants. Hence, economic growth without the quality of life is
not the best option for nations although economic growth is con-
sidered as a key indicator for advancing the livelihood of the na-
tions.
Life expectancy is a trending indicator for the health status
of all nations, which is being used as one of the best measure-
ment tools for countries’ development (Alam et al., 2016). They
also mentioned in their research work that insurance, healthcare
institutes, pharmaceutical industries and age care companies are
totally depending on life expectancy. They also mentioned in their
research work, these institutions and companies are directly in-
volved in countries development programs. Existing studies pri-
marily included intergeneration behavior, public finance, and poli-
cies, social securities & pension plans, fertility outcomes, and bet-

https://doi.org/10.1016/j.strueco.2020.03.004
0954-349X/© 2020 Elsevier B.V. All rights reserved.
258 Z. Wang, M.M. Asghar and S.A.H. Zaidi et al. / Structural Change and Economic Dynamics 53 (2020) 257–266
ter living conditions, while economic indicators include health care
expenditures, income, food, and pharmaceutical expenses. But till
now the contradictory role of financial development and variable
of energy consumptions has been paid little attention in the liter-
ature. And it has been ignored continuously by scholars. This re-
search work fills this gap and reconnoiters the dynamic relation-
ship among economic growth & life expectancy in Pakistan with a
contradictory role of financial development and energy consump-
tions. The rise in income and constant intensification in economic
growth are associated with an increase in the level of life ex-
pectancy. The high degree of life expectancy in the societies re-
flects a strong tendency for improving the per capita income of
people (Azomahou et al., 2009; Shahbaz et al., 2016). The level of
rising life expectancy depends upon how countries invest in im-
proving social indicators like health, education, pension plans, san-
itation plans, excellent food facilities, and improving the status of
the environment. Shahbaz et al. (2016) further explained in their
research work that most of the developed nations in the world
have increased life expectancy and economic growth by overcom-
ing poverty, more investments in education, health, food security,
sanitation system, purified drinking water, and better nutrition sys-
tem.
Financial development and life expectancy affect each other
through multiple channels. For example, Claessens and Fei-
jen (2007), in their study, described that the 1st channel is termed
as income effects. This channel explains that the rise in financial
development plays a vital role in boosting industrialization which
generates employment opportunities. They also explained that it
further increases the income level of specific societies in the form
of better health and nutrition. And as a result, inhabitants enjoy
a charming standard of life, which affects life expectancy in the
long term with a positive way. The second channel is called an
education effect. The education effect reveals that financial level
developments act as essential stimulators for increasing the edu-
cational level, which in turn moves the health status of people and
life expectancy in the right direction. It is also found in the study
of Shahbaz et al. (2019) that due to handsome amount of financial
resources people are keenly interested in investing in educational
opportunities for enhancing their capacity building for becoming
most skill orientated. They further argued that the rise in income
and education plays a significant role in making inhabitants most
health-conscious with effects of better living conditions. Finally,
they contended that better living conditions are mandatory part
of achieving quality of life expectancy. The third channel is gender
equity, where the empowerment of women in financial develop-
ment increases the ability of women to shape a healthy society,
which further improves life expectancy.
Last but not least is an infrastructural effect. This refers that
the most efficient development in health and education facili-
ties will lead to better living conditions among the communi-
ties with an increase in life expectancy. Moreover, some scholars,
like Alam et al. (2016), also pointed in their research work that
although financial development has a positive effect on life ex-
pectancy, the existence of adverse effects is also one of the pos-
sibilities. They further claimed that when low-income families are
highly collateral, they have to sell out all their assets, and due to
any financial crisis, the income of people is reduced and they can-
not spend well for maintaining their health status and as a result,
their life expectancy is affected negatively.
The negative externalities enumerated from energy consump-
tion in the form of environmental degradation have been stud-
ied by many scholars like (Shahbaz et al., 2019; Bekun et al.,
2019; Zaidi et al., 2018; Asghar et al., 2020) by using differ-
ent techniques in different regions. Similarly, some scholars like
Wang et al. (2019) in Pakistan, Apergis et al. (2018) in USA,
Zhou et al. (2019) in China found a robust causal interaction be-
tween environmental damages due to energy consumption and its
severe effects on human health. Similarly, scholars like Karimi and
Samadi (2018) pointed out air pollution due to excessive energy
consumption, is the fourth high-risk factor for mortalities. And ac-
cording to world health organization total causalities among whole
world due to air pollution and environmental degradation were
4.2 million which exceeded to 7 million for the fiscal year 2018
(World Health Organization, 2018).
This study has targeted the Pakistan economy, which is a South
Asian country with having a total population of 201 million peo-
ple and is ranked as the fifth largest populated country around the
globe (Ali et al., 2019). As per the study of Abas et al. (2017), the
rise of economic growth in Pakistan is conditional with traditional
energy resources. These traditional resources include coal, oil and
gas which play a significance role for enhancement of economic
growth of the country. Because most of the industries of Pakistan
are reliable on these resources which are generating lot of revenue
which is proportional to increase in economic growth.
Moreover, Pakistan is considered as a developing country which
is facing the problem of life expectancy, financial inequality
and poor health as well as educational infrastructure (Ali and
Audi, 2016). To that end, we tend to empirically investigate the
dynamic linkages among life expectancy, economic growth, en-
ergy consumption, and financial development and their causal im-
pacts on each other. The concept of life expectancy has been ob-
served with different and separate socio-economic variables like
income equality, economic growth, globalization, and pollution in
the scenario of Pakistan. This study signifies the potential role of
energy consumption and financial development on environmen-
tal degradation, which has severe effects on the life expectancy
for the inhabitants of Pakistan. This study contributes significantly
in the literature to find the combined effect and to fulfill the re-
search gap of above-mentioned variables and for suggesting poli-
cies to increase the life expectancy of Pakistan. Although the link-
age between growth and life expectancy is well reflected in past
literature, but this study has discussed this linkage for the case
of Pakistan, which is probably the first effort of its kind. Sec-
ondly, the empirical findings of our research work will be help-
ful for all concerns and stake-holders, which are associated di-
rectly with decision making and policymaking, particularly for
Pakistan. Moreover, we implied advance and traditional unit root
tests for checking the stationary level of data. The ARDL bounds-
testing approach was also applied for checking cointegration in
the presence of structural breaks occurred at a specific time. Fur-
thermore, the Granger causality test is also employed for mea-
suring the directions of links between the variables. Finally, com-
prehensive policies towards financial development, energy con-
sumption, environmental deterioration, and life expectancy are
recommended.
The symmetry for the other segments of the present study is
sequenced as follows: Section 2 reflects the brief literature review
and theoretical background from past and present empirical and
relevant studies. Section 3 represents the model specification and
research methodology. Section 4 is a reflection of empirical find-
ings and the discussions of results. Finally, discussions of the con-
clusion and recommended policies are drawn in Section 5.
2. Theoretical background and review of literature
The primary reason for conducting this study is to empirically
examine the dynamic linkages among GDP or economic growth, fi-
nancial development, energy consumptions, and life expectancy in
the case of Pakistan. Furthermore, Table A. (supplementary mate-
rial) represents the past and current studies on this topic. Addi-
tionally, the pairwise segmentation of the literature review is di-
 Z. Wang, M.M. Asghar and S.A.H. Zaidi et al. / Structural Change and Economic Dynamics 53 (2020) 257–266
vided into the following sub-sections which are highlighted with
details under the following lines.
2.1. Relationship of economic growth and life expectancy
Many scholars have explored the causal interactions between
life expectancy and economic growth in different regions with dif-
ferent time periods using single country and panel data studies
with mixed empirical findings. The recent research of Biyase and
Malesa (2019) in African economy with the relationship of vari-
ables, like democracy, population, economic growth, and life ex-
pectancy, found a positive and significant link among economic
growth and life expectancy. In their research work, the method of
two-stage least square was applied by observing data for the time
of 1985–2017. Meanwhile, Gürler and Özsoy (2019) using a panel
of 56 developing nations for the regions of North Africa, the Mid-
dle East, and Asian counties explored the long-run linkage between
economic growth & life expectancy.
Moreover, Gövdeli (2019) studied E7 countries with the help
of data for the period of 1992–2016 by using causality tests
and Shahbaz et al. (2019) in the region of Sub-Saharan African
economies, by applying parametric cointegration tests found a pos-
itive but significant relationship between GDP and life expectancy.
Furthermore, Shahbaz et al. (2019) in scenario of 16 African coun-
tries by using non-linear causality suggested that keeping in view
the best health infrastructure and economic growth as key indica-
tor for sustainability the governments of these countries can play
a crucial role for increasing the life expectancy level of the resi-
dence. Similarly, according to recent study, He and Li (2018) in 65
countries found bidirectional relationship and Biyase and Malesa
(2019), in context of 10 Southern African countries with the help of
two-stage least square method by taking into account the data of
1985–2017 found a positive impact of life expectancy on economic
growth. While in the study of Sirag et al. (2019), it was concluded
that life expectancy plays a vital role in enhancing the growth level
of countries but up to a certain level.
Some studies also reported negative association between this
link of economic growth and life expectancy; for example, the re-
search of Acemoglu and Johnson (2007) is providing evidence for
negative interaction. They conducted their research work in 47
countries under the category of rich, middle and emerging coun-
tries of the world. Statistically, their findings revealed the nega-
tive and insignificant association between the variables of life ex-
pectancy and gross domestic product or economic growth. The im-
pact of mortality with changes in life expectancy level was also
observed in their study.
2.2. Relationship between financial development and life expectancy
The 2nd strand of a related literature review is regarding the
comprehensive summary of the relation among financial devel-
opment and life expectancy. Existing literature has discussed the
impacts of financial development on life expectancy in multi-
ple regions of the world by using a panel and time-series data
sets. The debate started with the study of Kindleberger and Ma-
nias (1978), who argued that financial management directly influ-
ences economic growth of a country. Even countries can face fi-
nancial crisis if they do not manage financial resources wisely. He
further explained that when financial development is poorly man-
aged, the government spending on health, insurance, and living
conditions decreases that ultimately reduce life expectancy. Sim-
ilarly, when people do not have access to finance, they need to
sell their property and other fixed assets (e.g. vehicles, livestock,
etc.). It creates severe pressure and produces negative health ef-
fects on human lives. Another study conducted by Claessens and
259
Feijen (2007) threw light on various channels of financial devel-
opment, for example, gender equality, education effect, infrastruc-
ture effect, and income effect. They stated that these multiple
channels affect life expectancy in a country as financial develop-
ment leads to rise income, living standards, and education of the
people.
Similarly, some scholars like Sehrawat and Giri (2017) explored
the connection between financial development and life expectancy
for ten selected Asian countries. They testified a positive influence
of financial level developments on better living conditions, quality
standards of life and better life expectancy. On the contrary, some
authors also provided evidence of the negative impacts of financial
developments on life expectancy. For example, Nik et al. (2013) re-
ported a significant but negative influence of financial develop-
ments upon human capital. It was also argued in their work that,
such influence is caused by the poor and unplanned provisions of
financial means, funds and resources by the banking systems as
well as schemes. Due to mixed findings on this nexus (financial
development & life expectancy), authors were inspired to reinves-
tigate this nexus in the context of Pakistan to check with different
understandings and insights.
2.3. Energy consumption, environmental degradation, and life
expectancy
The third strand of our study literature is collected from dif-
ferent studies that are concerned regarding the connections be-
tween the complex nexus of energy consumptions, the associa-
tion of these energy consumptions with environmental degrada-
tion, and further their impacts on life expectancy. Energy con-
sumption is considered as the main driver for boosting eco-
nomic growth. Many authors, like Sultan and Alkhateeb (2019) and
Zaidi et al. (2018) pointed out in their research work that en-
ergy consumption in developing and developed nations among
the whole world is considered as a fundamental cause for eco-
nomic growth. Meanwhile, it is also stated in previous studies
that environmental degradation and air pollution due to energy
consumption has become a serious and alarming health concern
for the public of entire nations at a global level (Wang et al.,
2019; Martins et al., 2019). They also described that pollution em-
anated from energy consumption sources also hurt social and eco-
nomic causes. From the last few decades, environment and en-
ergy economics have come into eminence due to increasing threats
of gaseous emissions which are adding for global warming and
destructive issues of environmental degradations. The study of
Sarkodie et al. (2019), in European countries, explored that increase
in Particular matter due to intensive energy consumption is cause
of the reduction in level of life expectancy.
It is also evidence from existing literature that carbon emissions
are considered as the main culprit of environmental deterioration
(Zakaria and Bibi, 2019; Wang et al., 2018; Bekhet et al., 2017);
having harmful effects upon human capital particularly health of
human beings (Wang et al., 2019; Zaidi and Saidi, 2018). Further-
more, it was also stated that these emissions in the form of air
pollution are mainly caused by multiple resources of energy con-
sumptions (Al-Mulali et al., 2015; Zaidi et al., 2018; Shahbaz et al.,
2019). Similarly, during the past and current decades, scant work
has been done on the nexus of environmental degradation and its
horrible impacts on the level of life expectancy in different areas
of the world. The positive link amongst environmental degradation
and life expectancy has been observed in the past empirical re-
search work of (Balakrishnan et al., 2019; Schwartz et al., 2018;
Issaoui et al., 2015). Due to all literature as mentioned, the nega-
tive externalities in case of Pakistan can also be expected due to
energy consumption and environmental degradation.
260 Z. Wang, M.M. Asghar and S.A.H. Zaidi et al. / Structural Change and Economic Dynamics 53 (2020) 257–266

Table 1
Variables and definitions.

Names of variables Measuring units Respective definitions

Life expectancy The average number of years This is reflecting the average number of years for the life period for males as well as females.
Financial development Percentage of GDP This is measured by taking into account the real domestic credits to private sectors/capita
Gross domestic product Constant 2010 US Dollars It is the measurement of the values of gross domestic product (GDP) divided by population for
getting/capita GDP.
Energy consumptions Kg of oil equivalents Total energy consumed in kg of oil equivalent

3. Data and model specification Table 2

Descriptive statistic and correlation analysis.

3.1. Data Variables ln Ft ln FDt ln Et ln Yt

Mean 0.0046 0.0114 −0.1706 0.0208

This research work aims to examine the relationship between Median 0.0044 0.0093 −0.0937 0.0206
economic growth and life expectancy by considering the poten- Maximum 0.0087 0.2035 0.7324 0.0648
tial role of financial development and energy consumptions in Pak- Minimum 0.0022 −0.2476 −0.9093 −0.0186
Std. dev. 0.0014 0.0934 0.2893 0.0179
istan. The data for all nexus of study variables are collected from
Skewness 0.7646 −0.4828 0.0890 0.1083
World Development Indicators (World Bank, 2018). The data of Kurtosis 3.8389 3.7910 4.0319 2.7125
Pakistan is covering the range of 1972–2017 for empirical obser- Jarque–Bera 1.8315 2.9866 2.1019 0.2483
vations and analysis. The definitions of all included variables are Probability 0.1741 0.2246 0.3495 0.8832
ln Ft 1.0000
highlighted in the Table 1. of this manuscript. Following model is
ln FDt −0.2267 1.0000
specified to express the determinants of life expectancy in Pak- ln Et −0.2978 −0.2039 1.0000
istan: ln Yt 0.0483 0.3661 −0.3119 1.0000

lnLE = f (lnGDP, lnF D, lnE ) (1)

be present in time series data. The ARDL model can be presented
where LE denotes life, expectancy is modeled as a function of through the under-mentioned equation:
Gross Domestic Product (economic growth), financial development,
and energy consumptions. Furthermore, in Eq. (1), GDP, FD and E

p

q

q
lnLE = c0 + β1 LEt−r + β2 lnGDPt−r + β3 lnFDt−r
represent gross domestic product, financial development and en-
i=1 i=0 i=0
ergy consumptions respectively. While applying the ARDL tech-

q
nique following steps of methodology were taken for empirical in- + β4 lnEt−r + λ1 lnLEt−1 + λ2 lnGDPt−1
vestigations. i=0

1- Application of unit root test for structural breaks including Aug-
mented Dicky Fuller and Zivot & Andrews tests.
2- In the second step, the optimal lag length for the model was
taken into account.
3- Bound tests for cointegration and for verification of this cointe-
gration by Johansen cointegration technique.
4- For long and short-run ARDL method was applied.
5- Application of CUSUM and CUSUM square tests
6- Finally, for finding the causal relationship among the study vari-
ables, Granger causal technique was applied.
3.2. Econometric strategy
The objective of this study is to find long-and short-run dy-
namics between economic growth and life expectancy by consid-
ering the potential role of financial development and energy con-
sumption using data of Pakistan. In order to find long-run coin-
tegration and dynamic relationships, this study uses Autoregres-
sive Distribute Lag (ARDL) model. This technique is best suited for
time-series data which is easy to understand and provides long-
run and short-run results through a single equation/model. The
ARDL technique was developed by Pesaran et al. (2001). As com-
pared to other available techniques to find cointegration, ARDL
possess some unique benefits Harris ,2003) such as ((1) it can be
used for time-series data which is integrated on level, fist differ-
ence or mixed integration; (2) it provides robust results by adjust-
ing the lags in the specified models; (3) ARDL accommodates the
structural breaks in the data; (4) This technique provides T-values
and F-statistics for the estimation of long-run models. Moreover,
ARDL also provides assistance in deriving dynamic UECM (Unre-
stricted error correction model through the process of a simple
linear transformation. As per Pesaran et al. (2001), ARDL also ad-
dresses the issues of serial correlation and endogenicity that may
+λ3 lnFDt−1 + λ4 lnEt−1 + εt (2)
We started the ARDL process by checking the stationary levels
of data. It is a precondition of ARDL that data should be either in-
tegrated at a level I (0), or first difference I (1). None of the data
series should be integrated on I (2). According to Ouattara (2004),
if the series is stationary at the 2nd level of difference, then it
will be not reliable to justified the F-statistic for ARDL. We applied
unit root tests with and without occurring of structural breaks
in the series of data. To deal with structural breaks, we applied
the Augmented Dickey–Fuller test, unit root tests recommended
by (Kim and Perron, 2009). Furthermore, for checking the causal
relationship among study variables Vector Error Correction Model
(VECM) was applied.
4. Results and discussion
The descriptive digits & values, as well as pair-wise correlation
analysis, are testified in Table 2. These statistics reveal that life ex-
pectancy contains lesser variations compared to economic growth.
And also, it was found that the amount of volatility in energy con-
sumptions is maximum while comparing with financial develop-
ment. The statistics provided by the Jarque–Bera test present the
normal distributions of all the data for all sample size of the vari-
ables. The presence of a normal distribution of data leads us to
further empirical analysis.
This analysis of pairwise correlation is providing indications
that financial development and life expectancy are negatively cor-
related with each other. While energy consumptions are also re-
vealing negative strength of association with financial develop-
ment. Moreover, the link between growth and life expectancy is
positively correlated with each other. A positive (negative) is found
among economic growth and financial development (energy con-
sumptions and growth).
 Z. Wang, M.M. Asghar and S.A.H. Zaidi et al. / Structural Change and Economic Dynamics 53 (2020) 257–266 261

Table 3 these structural breaks for the year 20 07–20 08 are mentioned in
Unit root analysis.
the studies of Zaidi et al. (2018) and Wang et al. (2019).
Variables Traditional ADF test Structural break ADF test Furthermore, a lot of fluctuations and disturbance in economic
T-statistic P. value T-statistic P. value Break year growth were created among all economies. Pakistan was also
victimized by these economic and financial crises. All structural
ln Ft 1.8773 1.0000 −1.7457 0.999 2013
ln FDt −2.4304 0.3597 −4.4953 0.1322 2008
breaks which were observed in our study during 2013, 20 07, 20 08,
ln Et −2.1913 0.4826 −2.8869 0.9404 2007 and 1979 are occurring due to economic fluctuations, political in-
ln Yt −1.7269 0.7227 −3.3726 0.356 1979 stability, terrorism, and new rules and regulations.
ln Ft −4.3616∗ 0.0016 −7.4314∗ 0.0001 2004 We found that all the variables are stationary after the 1st dif-
ln FDt −4.4397∗ 0.0038 −5.183∗ ∗ 0.0184 1976
ference. This shows that life expectancy, financial development, en-
ln Et −3.7480∗ ∗ 0.0293 −7.6688∗ 0.0001 2001
ln Yt −4.9494∗ 0.0012 −5.7618∗ 0.0001 1992 ergy consumption, and economic growth have a unique order of
integration, i.e. I (1). The confirmation of integrating properties
of the variables leads us to apply the cointegration approach for
For examining the integrating properties of all variables in our testing the presence of cointegration between the variables. For
manuscript, ADF unit root tests were considered for further inves- examining the long-run equilibrium relationship between life ex-
tigations. Moreover, these tests were used with the presence and pectancy and its determinants, we chose to apply the ARDL bounds
absence of structural breaks in the series of data. The empirical testing approach to cointegration. The ARDL bounds testing ap-
values are shown in Table 3. proach is sensitive to lag order selection. In doing so, we chose
We observe that life expectancy, financial development, energy the Akaike Information Criterion (AIC), and appropriate lag length
consumptions, and economic growth hold some unit root compli- selection is reported in column-II of Table 4.
cations at level accommodating intercept and time trend without The AIC outcomes recommend using maximum lag order 2.
the presence of the structural breaks during the series. This con- In Table 4, we note that calculated ARDL-F statistics exceed up-
firms that the status for all variables is observed as non-stationary per critical bound at 5% level of significance as we used life ex-
at a level. After 1st difference, life expectancy, financial develop- pectancy, financial development, and energy consumption as de-
ment, energy consumption, and economic growth are found sta- pendent variables. This rejects the null hypothesis of no type of
tionary. We conclude based on our empirical analysis that all the cointegration between the variables. We have to face the failure for
variables are integrated at I (1). The problem with traditional ADF rejecting the hypothesis of cointegration in-between the variables
(Dickey and Fuller, 1979) is that it does not accommodate the in- as we used life expectancy, financial development, and economic
formation of unknown structural breaks(s) stemming into the se- growth as independent variables. Our empirical analysis validates
ries. This weakens its power and explaining properties which in the presence of three cointegration vectors in life expectancy func-
resulting, leads to ambiguous empirical evidence. This problematic tion, confirming the existence of a long-run relationship between
matter is solved by using the application of ADF unit root tests life expectancy and its determinants throughout 1972–2018 in the
which, are referred by Kim and Perron (2009). This test is use- case of Pakistan. We have also applied diagnostic tests to validate
ful for accommodating unknown single structural breaks which are the reliability of ARDL empirical results. We find the normal dis-
occurring in the series. All empirical results of unit root tests (hav- tribution of residual term. There is no presence of serial corre-
ing structural breaks) are reported in Table 3. We find that all the lation and autoregressive conditional heteroscedasticity. The well-
variables restrain unit root in the presence of structural breaks. The specification of ARDL empirical models is confirmed by the Ramsey
structural breaks are for the years 2013, 2008, 2007, and 1979 for test. The CUSUM and CUSUMsq tests also contribute well for val-
life expectancy in Pakistan, financial development status, energy idating the stability, which is concerned with empirical results in
related consumptions and economic growth. The structural break ARDL-framework.
stems in life expectancy is related to One UN Program II (2013–17)
whose objective to improve humanitarian development such as life 4.1. Long- and short-term relationship
expectancy.
The structural break of 2013 recalls the introduction of the After confirmation of the cointegration between life expectancy
United Nations’ Program II to improve humanitarian-development and its determinants, we scrutinize the effect of financial devel-
in the member countries, including Pakistan. Significant policies opment, energy consumptions, and economic growth on life ex-
were introduced that helped the countries in improving their life pectancy. All relevant empirical outcomes with main findings are
expectancy rates. Similarly, in 2013, there was political instabil- reported in Table 5.
ity in the Pakistan; elections were conducted; the new govern- We conclude that financial development negatively and signifi-
ment was elected. At that time, terrorism was at its peak, and the cantly (at 1% level of significance) interrelated with life expectancy.
budget was not segmented properly. There were many structural Keeping other things constant, a 1% increase in financial devel-
changes in economic and financial system of the country. There opment declines life expectancy by 0.0301%. It is evident from
was major slowdown in business activities that hampered finan- the literature that financial development of the country is consid-
cial development and economic growth in the country due to sev- ered to be the main driver for economic growth (Shahbaz et al.,
eral unwanted events, as mentioned above (Grare, 2013). As a re- 2019, 2017). Most of the researchers have seen the positive ef-
sult, it affects life expectancy negatively. Furthermore, it is men- fect of life expectancy and financial development with an increase
tioned in the Human Development Report, Bari (2017) that the in economic growth. The research work of Claessens and Fei-
main purpose for United Nations program II in case of Pakistan jen (2007), is providing evidence, that financial development in the
was to overcome the issues of under pressure economy, political form of increased stock market activity and promotion of indus-
instability, environmental concern, equality, human development trialization increases income and living standards of inhabitants
through proper focus on health and education, financial devel- by better employment opportunities. Furthermore, better health,
opment, and crisis with collaboration of government of Pakistan. food nutrition, and education facilities due to financial develop-
The structural breaks of 2007–08 remind about the global finan- ments play a vital role in shaping good and healthy human cap-
cial crisis that covered the whole world in its vicious circle. These ital, which further improves life expectancy. Similarly, the study of
structural breaks were due to the financial crisis, which were oc- Alam et al. (2016) also investigated the positive influence of finan-
curred in the whole world, including Pakistan. The reference of cial developments upon the level of life expectancy in their case
262 Z. Wang, M.M. Asghar and S.A.H. Zaidi et al. / Structural Change and Economic Dynamics 53 (2020) 257–266

Table 4
The results of the ARDL cointegration test

Bounds testing approach to cointegration Diagnostic tests

Estimated models Lag length Break year F-statistic χNORMAL

2
χARCH
2
χRE
2
SE T χSERIAL
2
CUSUM CUSUMsq

Ft = f (F Dt , Et , Y ) 2, 1, 2, 2 2013 7.879∗ ∗ 2.6972 2.0998 1.3765 1.7891 Stable Stable

F Dt = f (Ft , Et , Yt ) 2, 2, 1, 2 2008 6.673∗ ∗ 0.3613 3.0803 0.7559 0.2346 Stable Stable
Yt = f (Ft , Et , F Dt ) 2, 1, 1, 2 1979 6.907∗ ∗ 2.4978 0.2270 0.7392 0.1545 Stable Stable
Et = f (Ft , F Dt , Yt ) 2, 2, 2, 2 2007 4.1156 0.0629 1.7775 0.3418 2.5663 Stable Stable
Critical values (T = 49)
Significance level Lower bounds I(0) Upper bounds I(1)
1 percent level 6.873 8.163
5 percent level 5.110 6.190
10 percent level 4.330 5.243
∗∗
Note: denotes the significant at 5% level. The optimal lag length is determined by AIC.

Table 5 modities, extensive expansion of tourism, which causes environ-

Long run and short-run analysis.
mental degradation. Similarly, the study of Dasgupta et al. (2001) is
Dependent variable:ln Ft also evidence that financial development expands the manufac-
Long-run analysis turing industry by extensive use of energy consumption and
Variable Coefficient Std. error T-statistic Prob. causes environmental degradation. Similarly, some scholars like
Constant 2.3724∗ 0.2275 10.427 0.0000 Kumbaroğlu et al. (2008) found that financial development causes
ln FDt −0.0301∗ 0.0076 −3.9548 0.0003 foreign direct investment with extensive usage of energy and
ln Et −0.0685∗ 0.0237 −2.8831 0.0061
causing environmental pollution. Moreover, the current study of
ln Yt 0.1946∗ 0.0175 11.0867 0.0000
Dt −0.0021 0.0056 −0.3831 0.7035 Nkalu and Edeme (2019) in case of Africa is evidenced that envi-
R2 0.9873 ronmental degradation due to the consumption of fossil fuels plays
a significant role in reducing life expectancy. To that end, our re-
Adjusted-R2 0.9865
sults are justifiable for Pakistan that the life expectancy of inhab-
F-statistic 11.2260∗
Durbin–Watson 2.3379 itant is reduced due to financial development on the expense of
Short run analysis environmental degradation.
Constant 0.0046∗ 0.0002 18.2184 0.0000 The causality interaction among energy consumptions and
ln FDt −0.0559∗ ∗ 0.0259 −2.1582 0.0370 life expectancy is negative, which is significant at a 1% sig-
ln Et −0.0149∗ ∗ 0.0066 −2.2710 0.0286
nificance level. It confirms that energy consumption also low-
ln Yt 0.0629 0.1113 0.5649 0.5753
Dt −0.0149∗ 0.0033 −4.5047 0.0001 ers life expectancy. A 1% rise in energy consumptions is lead-
EC Mt−1 −0.0452∗ ∗ 0.0210 −2.1453 0.0381 ing towards a decline in life expectancy with a value of 0.0685%,
R2 0.4124 and all else is the same. Although energy plays a dramati-
Adjusted-R2 0.3396
cal part in enhancing economic growth of the countries at the
F-statistic 5.6284∗
Durbin-Watson 2.0018
same time, it is also contributing to environmental degradation
Stability analysis (Zaidi et al., 2018). The negative impact of energy consumptions
Test F-statistic P. value on the level of life expectancy in Pakistan matches the findings
χNORMAL
2
2.3435 0.3462 of Sarkodie et al. (2019) for Europe that air pollution, emanated
χSERIAL
2
2.5432 0.4452
from energy consumption hurts human health, and it reduces
χARCH
2
4.0918 0.1109
χHetero
2
0.6604 0.8071 life expectancy. Furthermore, they concluded in their panel study
χRE
2
SE T 0.9028 0.3722 for the region of Europe, Central, and East Asia and Pacific re-
CUSUM Stable gions that energy-led pollution contributes negatively to lower-
CUSUMsq Stable
ing life expectancy and increased mortality rate in all specific ar-
Note: ∗
and ∗∗
show significance at 1% and 5% levels, respectively. eas. The results of our study are also consistent with Nkalu and
Edeme (2019) in case of Africa, Mariani et al. (2010) in case of Ger-
many, Matthew et al. (2018) in Nigeria concluding the negative role
study of India. But for Pakistan, the results of our study are inter- of energy in lowering life expectancy due to environmental degra-
esting, and there is negative strength of association among finan- dation. As Pakistan depends dramatically on conventional nonre-
cial development and life expectancy. The findings of our study are newable energy, the rising air pollution is creating severe health
showing consistency with the past research of Nik et al. (2013) in problems with increasing health expenditures (Wang et al., 2019).
case of Iran as they found negative effect of financial development Therefore, the negative impact of energy consumption, environ-
on human capital. And according to Claessens and Feijen (2007), mental degradation on life expectancy can be expected in case of
human capital plays its vital role in improving level of life ex- Pakistan.
pectancy. Furthermore, the reasons for negative impact of finan- The association between economic growth & life expectancy
cial development on life expectancy in the case of Pakistan can be is revealing a positive interaction, which is reflected significant
multifold. As per findings of Moghadam and Lotfalipour (2014), fi- at a 1% level. The positive relationship of economic growth and
nancial development is negatively associated with the expense of life expectancy in Pakistan is providing support to past empiri-
environmental degradation and environmental degradation is ac- cal studies on this nexus in different regions in the world. For
celerated by energy consumption (Hanif, 2018; Zaidi et al., 2018). example, the findings of the studies of Mahyar (2016) in Iran,
Furthermore, the negative impact of financial development on Ngangue, and Manfred (2015) in the panel of 141 countries,
energy consumption in the context of environmental degrada- Bowser (2010) in USA states are showing consistency with our
tion has been investigated in past studies. Some scholars like results that economic growth has a positive and significant rela-
Sadorsky (2010) mentioned in their research that financial devel- tionship with level of life expectancy. Similarly, the current study
opment is the main cause for usage of maximum transportations of Biyase et al. (2019) in African countries is also showing pos-
and automobile demands, purchasing a high level of energy com-
 Z. Wang, M.M. Asghar and S.A.H. Zaidi et al. / Structural Change and Economic Dynamics 53 (2020) 257–266 263

Fig. 1. CUSUM test.

itive effect of life expectancy on economic growth. Furthermore, stability of short-run analysis are tested by applying CUSUM and
the findings of this study are not matching with the conclusions CUSUMsq tests. The results are reported in Fig. 1. We highlight that
from Acemoglu and Johnson (2007), who observed no impact and graphical representations are provided by CUSUM and CUSUMsq
(Hansen and Lønstrup, 2015) found a negative relationship among which are lying within the critical bounds at a 5% level of signifi-
economic growth and longevity of life, which is also named as life cance.
expectancy. In the same manners, the impact of the dummy vari-
able is negative and insignificant. The reasons for negative and in- 4.2. VECM Granger causality results
significant effects for the dummy variable are multi-folded. As it
reminds the United Nations Program II which was initiated in 2013 After observing the long- and short-term impacts of financial
for human development with the main focus of an increase in life development, energy consumptions, and economic growth on life
expectancy level of entire nations including Pakistan. But unfortu- expectancy, we examine the presence of causal interactions among
nately, Pakistan could not focus properly on the implementation of the variable of life expectancy and its determinants by using the
this program due to political instability, terrorist activities, finan- VECM Granger causality approach. The VCEM model can be ex-
cial crises, and economic recession as well. Upon these reasons the pressed by the following equation:
negative impact of dummy variable in our study can be expected. ⎡ ⎤ ⎡ ⎤ ⎡ ⎤
The life expectancy demand function is well explained by finan- lnLEt−p δ1 θ11 p θ12 p θ13 p θ14 p
⎢lnGDPt−p ⎥ ⎢δ2 ⎥ q
⎢θ21 p θ22 p θ23 p θ24 p ⎥
cial development, energy consumptions, and economic growth by ⎣lnFD ⎦ = ⎣δ ⎦ + ⎣θ
98.73%. Moreover, empirical model regarding life expectancy de- t−p 3 31 p θ32 p θ33 p θ34 p ⎦
p−1
mand function contains the absence of auto-correlation. lnEt−p δ4 θ41 p θ42 p θ43 p θ44 p
⎡ ⎤ ⎡ ⎤ ⎡ ⎤
The short-term findings are also described in the lower part of lnLEt−p α1 μ1t
Table 4. It is concluded that financial development is negatively ⎢lnGDPt−p ⎥ ⎢α2 ⎥ ⎢μ2t ⎥
×⎣
 ln F Dt−p ⎦ ⎣α3 ⎦ it−1 ⎣μ3t ⎦
interconnected with life expectancy, which is showing statistical + EC T + (3)
significance at 5%. Energy consumption also lowers life expectancy lnEt−p α4 μ4t
significantly. Economic growth positively and insignificantly affects
life expectancy. And the impact of the dummy variable is negative The main findings are presented in Table 6.
and statistically significant — the coefficient of EC Mt−1 with nega- In the long run, we observe the incidence of a bidirectional link-
tive demonstrates the speeds for adjustments from the long-run to age among financial development and life expectancy, i.e. financial
short-run. Meanwhile, the statistical significance of EC Mt−1 further development has a causal effect on level of life expectancy, in the
confirms the established long-term cointegrated relation among same way, life expectancy also has causal effect on financial devel-
the variables (Banerjee et al. 1998). We note that the coefficient opment. The findings of our study are reflecting consistency with
EC Mt−1 is −0.0452, which is representing significance at a 5% level. the research work of Alam et al. (2016) in the case of India, where
This reflects that short-term deviation is corrected by 4.52% and they observed long term interaction between these two variables
will take at least 22 years for reaching on the paths of long-run with the help of other variables including economic growth, edu-
equilibrium in Pakistan. cation expenditures, and economic misery. Similarly, Claessens and
The diagnostic explorations reveal the normality of the resid- Feijen (2007) also endorsed the causal relationship among both
ual term for life expectancy demand function in Pakistan. We find variables (financial development and life expectancy) by conclud-
the absence of serial correlations & auto-condition heteroscedastic- ing that these variables have cause and effect upon each other in
ity. In life expectancy demand function, the absence of white het- long run. The association between energy consumption and life ex-
eroscedasticity was found absent. The Ramsey reset test also en- pectancy is also bidirectional, i.e. feedback effect. The results of our
dorses the model fitness, which is well specified for the empirical study are showing consistency with Olatayo et al., 2019 in case of
equation of life expectancy demand function. The reliability and Nigeria, that energy-led environmental degradation has feedback
relation with economic growth and life expectancy. They also ex-
264 Z. Wang, M.M. Asghar and S.A.H. Zaidi et al. / Structural Change and Economic Dynamics 53 (2020) 257–266
Fig. 2. CUSUM of squares test.
amined in their study that GDP or economic growth is the main
cause of increasing environmental degradation, and on the other
way, environmental degradation reduces economic growth. They
further concluded that reduction or increment in environmental
degradation also affects the health of Nigerian people by enhanc-
ing or reducing life expectancy level.
Energy consumption causes financial development, which in
response also causes energy consumptions in Granger sense, i.e.
bidirectional causality. The empirical findings of our study are
matching with the findings of Shahbaz et al. (2017), they mea-
sured the two-way (bidirectional causal interaction) among finan-
cial development and energy consumptions. Similarly, the study
of Zaidi et al. (2019) in the panel of Asia Pacific Economic Co-
operation found the feedback effect between financial develop-
ment and energy consumptions as well as carbon emission. Eco-
nomic growth causes life expectancy, but the same findings are
not correct from the opposite side. These findings are matching
with Ling et al. (2017) in the case of Malaysia. They further claimed
that the wealthy nations are considered to be always as health na-
tions. These findings are also showing consistency with the study
of Sunde (2009). The unidirectional causality also exists running
from economic growth to financial development and energy con-
sumption. For the unidirectional causality of economic growth to
financial development, our results are matching with the previous
research work of Liang et al. (2006) in China and showing con-
tradictions with the recent findings of Zaidi et al. (2019) in Asia
Pacific economies. They observed unidirectional causality running
from financial development to economic growth. Similarly, the uni-
directional causal interaction between economic growth and en-
ergy consumption is also showing consistency in the past and cur-
rent study of Akadiri et al., 2019 in Iraq. Moreover, in the short
run, financial development and energy consumption are the cause
of life expectancy. Energy consumption causes economic growth.
The mutual causality also ratifies the short as well as long term
results.
5. Conclusion and policy implications
This research visited the impacts of financial development upon
life expectancy by considering the vigorous role of energy con-
sumptions and economic growth in life expectancy demand func-
tion by using the data of Pakistan. The data was spanning from the
duration of the years 1972–2017. Moreover, we have applied the
bounds testing technique and VECM Granger causality tests for sta-
tistical examining long run and causality association amongst the
variables in the existence of structural breaks occurring in the se-
ries. The statistical findings and results substantiate the existence
of cointegration between the study variables. In addition, accord-
ing to our findings, financial development in Pakistan is lowering
the level of life expectancy. It is also observed that the link be-
tween energy consumption and life expectancy is associated nega-
tively. The positive linkage of growth and life expectancy is inves-
tigated in our empirical findings. The causality investigation tells
the occurrence of feedback (bi-directional) effects among financial
developments and level of life expectancy. It is also reflected in
causality analysis that economic growth of Pakistan causes life ex-
pectancy. The causal interaction between the variables of energy
consumption and life expectancy is also showing a bidirectional
association. Before moving to the next step of policy implications,
we realized some bitter realities which are also supporting our
findings in the case of Pakistan. Although financial development
is a key indicator for enhancing the economic development and
growth of the country at the same time, it is also promoting tra-
ditional energy consumption habits, which further cause environ-
mental degradation. In this situation, environmental degradations
affects life expectancy negatively. It is also truth that economic
growth of Pakistan is conditional with nonrenewable energy re-
sources. When whole of the world is moving towards renewable
energy resources, Pakistan is still investing a lot of money on the
power projects which are associated with traditional energy meth-
ods of coal, oil and gas consumptions. The major sources of en-
ergy consumption in Pakistan are coal, oil and gas. It is evident
from research work of many scholars like Bano et al. (2018), and
Abas et al. (2017) that Pakistan is relying heavily on these tradi-
tional resources of energy consumption. According to Komal and
Abbas (2015) it is stated that financial development and energy
consumption positively affects each other through the medium of
economic growth. Moreover energy consumption is main pillar of
economic growth which is interlinked with financial development
(Zaidi et al., 2018). To that end negative consequences in form of
environmental damages cannot be ignored.
In light of policy implication, the analysis and findings of our
study suggest that the economy of Pakistan should revise the bud-
 Z. Wang, M.M. Asghar and S.A.H. Zaidi et al. / Structural Change and Economic Dynamics 53 (2020) 257–266 265

getary allocations to tackle health-related serious concerns that are

3.6652∗ ∗ [0.0214]
3.0608∗ ∗ [0.0423]
associated with energy consumption and environmental degrada-

5.8705∗ [0.0001]
 ln Yt−1 , EC Tt−1
tion for protecting human health and their longevity. Moreover,
the government of Pakistan should facilitate all concerned stake-
holders who are associated with financial development by lending
a handsome amount for promoting environmentally friendly tech-

….
nology for production purposes. The potential stakeholders include

2.8650∗ ∗ [0.0445]
the banking sector, leasing and insurance companies, international

6.0720∗ [0.0001]
 ln Et−1 , EC Tt−1
not-for-profit organization and foreign investment etc.
Joint long-and-short run causality
According to Zhang et al. (2018), among Belt and Road coun-
tries, Pakistan is enriched with natural resources that can be uti-
lized appropriately for power generations. It is time for Pakistan

….
….
to initiate the steps for introducing hybrid and energy-efficient
2.9617∗ ∗ [0.0346]

technologies by improving technological capabilities in the form of

 ln F Dt−1 , EC Tt−1

4.4015∗ [0.0099]

new- able energy resources Shahbaz et al. (2019). These resources

can gear up towards financial development and economic growth
without any threat of environmental damages as economic growth
has a causal as well as positive relation with life expectancy in Pak-
….

….

istan. Furthermore, the link among variables of energy consump-

tions & financial development has a contradictive negative role in
3.3757∗ ∗ [0.0206]
10.2766 [0.0001]
 ln Ft−1 , EC Tt−1

the form of environmental degradation. The government of Pak-

istan, along with concerned policymakers should take into account
the health and environmental policies.
Moreover, the massive amount of investments in renewable en-
….

….

ergy resources and the health & education sector for financial de-
velopment without compromising economic growth and life ex-
-0.0563∗ ∗ [−1.8620]
-0.7619∗ [−6.3338]
-0.3936∗ [−3.3059]
-0.1430 [−1.3435]

pectancy of Pakistani people is needed. Finally, our piece of re-

search work implies that a good level of life expectancy will be
a risky factor for future invasions if the health of inhabitants of
Long run

Pakistan are severely exaggerated by environmental damages. The

EC Tt−1

government of Pakistan should strictly revise the policies for finan-

cial development and economic growth by keeping in mind the
Break year

environmental damages that are occurring due to financial devel-

opment associated with traditional energy resources. We identified
1979
2013
2008
2007

the limitations for our study that it is not covering CO2 emissions
as we aimed to explore the linkages amongst financial develop-
0.2383 [0.7879]

1.7663 [0.1854]
0.8370 [0.4415]

ment, GDP, energy consumptions, and life expectancy.

Supplementary materials
 ln Yt−1

….

Supplementary material associated with this article can be

found, in the online version, at doi:10.1016/j.strueco.2020.03.004.
4.6896∗ ∗ [0.0115]
1.7319 [0.1918]
0.6386 [0.5339]

CRediT authorship contribution statement

indicate 1%, 5% and 10% significance levels respectively.

Zhaohua Wang: Writing - original draft, Validation, Investiga-

ln Et−1

tion, Funding acquisition. Muhammad Mansoor Asghar: Writing -

….

original draft, Formal analysis. Syed Anees Haider Zaidi: Visualiza-

1.4361 [0.2515]
1.7172 [0.1939]
0.8689 [0.4280]

tion. Kishwar Nawaz: Data curation. Bo Wang: Conceptualization,

Writing - review & editing, Project administration. Wehui Zhao:
 ln F Dt−1

Methodology, Software. Fengxing Xu: Methodology, Software.

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3.2296∗ ∗ ∗ [0.0516]
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