The Empirical Economics Letters, 12(11): (November 2013) ISSN 1681 8997 Impact of Industrialization and Economic Reforms on Environmental Quality in Pakistan Sadaf Shahab * , Shah Abbas and Muhammad Tariq Mahmood FUUAST School of Economics Sciences Federal Urdu University, Islamabad, Pakistan Abstract: The objective of this study is to investigate relationship between industrialization and environmental quality in Pakistan by using the time series data from 1980-2011. The CO 2 emission is used as an indicator of environmental quality. The CO 2 emission aggravated from the industrial sector is regressed on the industrial GDP, trade, taxes rate, outflow and inflow of FDI, the energy use as a percentage of GDP is use as a proxy for the technology. The empirical results suggest that there is positive relationship between the industrialization and environmental degradation. The policy plays important role to minimize the emission aggravated form the industrial sector and show the negative sign between the CO 2 emissions and policy variable. Keywords: Environmental Quality, CO 2 Emissions, Industrial Output, Cointegration, Error Correction Model, JEL Classification Number: C5; E5; F4; 1. Introduction To control pollution has been one the most important and challenging issues in the environmental policy of both developed and developing countries. In the 1990 there have been many attempts to evaluate the impact of economic growth and environment. They found economic growth and environment is interrelated with each other. The economy in which market goods and services are produced on the bases of market demand and supply most form of production generates pollution. There was little agreement on both the economic growth led to environmental degradation and also increase environmental quality. Some empirical results suggested that the economic growth result ever increase use of energy and material and hence more environmental degradation. On the other hand some claim that the faster road to environmental improvement is more economic growth. Therefore, economic activates may be cause of environmental problem as well as improve the environmental quality. The environmental Kuznets curve is the hypothesized the relationship between the environmental quality and economic development. The various components of * Corresponding Author. Email: shahab.sadaf@gmail.com