The Role of Trade Openness on CO2 Emissions in Malaysia : an ARDL Approach

Seak, Shin Tong (2020) The Role of Trade Openness on CO2 Emissions in Malaysia : an ARDL Approach. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

Since Malaysia has gone through industrialisation, the country has experienced a rapid growth in the economic developments. Besides that, the country has also become more open to trade as international trade has become an important source of income for Malaysia. However, this outstanding economic performance has bring environmental degradation in the country as the CO2 emissions was found to be a rising trend. This phenomenon is seen to be a worrying issue towards Malaysia as the CO2 emissions has increased drastically for approximately 6.778 metric tonnes per capita over 44 years. Therefore, this underlying paper is aimed to examine whether the CO2 emissions in Malaysia is influence by trade openness, foreign direct investment and economic growth over the period of 1971 to 2014. In addition, the Autoregressive Distributed Lag (ARDL) test and an error correction model based on ARDL approach was employed to examine the cointegration between the variables. The findings of the study suggested that there is a positive long run relationship between the CO2 emissions and trade openness in Malaysia. Thus, this validates the ‘pollution haven hypothesis’ to exist. Moreover, the result also indicate that economic growth has a positive long run relationship with CO2 emissions in both long run and short run. On the other hand, the FDI inflow is found to be an insignificant variable to influence the CO2 emissions in Malaysia. As such, Malaysia government should provide investment allowances (GITA) or tax exemptions to the firms and offer more flexibility by lowering the green loan requirements.