The Impact of Renewable Energy on Economic Growth Across Three Key Sectors in Malaysia

Ng, Sze May (2025) The Impact of Renewable Energy on Economic Growth Across Three Key Sectors in Malaysia. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

The main objective of this study is to investigate the impact and causal relationship between renewable energy and economic growth in Malaysia, focusing on the overall economy and GDP contributions from three sectors, namely, the industry, the service and agriculture. Using annual data published by the World Bank for the period from 1990 to 2022, the study employed ARDL bound test and Granger causality Wald test. The findings suggest that the renewable energy sector is cointegrated with the overall economy and the three economic sectors in the long run. Renewable energy consumption has a positive and significant impacts on the overall economy, as well as on GDP contributions from the industry and service sectors. However, the results from the agriculture model indicate that while renewable energy consumption positively affects GDP contributed by agriculture, this impact is not significant. Moreover, the results of the Granger causality Wald test results support a growth hypothesis between renewable energy consumption and the overall economy, a neutrality hypothesis in the industry and agriculture sectors, and a conservation hypothesis in the services sector in the short run. Based on these findings, policy recommendations can be made for the Malaysian government to develop renewable energy initiatives tailored to the specific needs of different economic sectors, in alignment with their respective energy consumption patterns. This study also provides valuable insights into the development of renewable energy in Malaysia. The overall results from the ARDL models suggest that utilising renewable energy as an alternative source could benefit Malaysia’s economy, highlighting the need for further development of renewable energy infrastructure. Increased research and development efforts will also be pertinent in supporting this transition. The conservation hypothesis in the services sector indicates that the Malaysian government should invest and support retail, tourism, banking, and finance to encourage and accelerate the adoption of renewable energy. Furthermore, the government should increase overall capital investment, as a causal relationship exists between capital and renewable energy across all models. Labour also plays a causal role in renewable energy consumption, indicating that the government should focus on creating more jobs, offering training programmes, and raising minimum wages to support the transition to renewable energy. The development of renewable energy infrastructure will further generate job opportunities. Conversely, while capital shows a negative but statistically insignificant impact on Malaysia’s overall economy and the services sector, it has a positive and significant impact on both agriculture and industry in the long run. This suggests that Malaysia should provide more subsidies, research, and development funds for new capital and technologies in the agricultural sector, which might still rely heavily on traditional farming methods. Education programmes should also be implemented to enhance access to modern farming techniques