Assessing the Impact of Economic Growth, Foreign Direct Investment (FDI), Trade, and Urbanization on Greenhouse Gas (GHG) Emissions: An Empirical Analysis

Thong, Jing Yee (2024) Assessing the Impact of Economic Growth, Foreign Direct Investment (FDI), Trade, and Urbanization on Greenhouse Gas (GHG) Emissions: An Empirical Analysis. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

Malaysia has experienced rapid economic growth, but this remarkable performance has come at the cost of environmental degradation, evidenced by a rising trend in greenhouse gas (GHG) emissions. This paper aims to investigate the influence of macroeconomic variables such as Gross Domestic Product (GDP), foreign direct investment (FDI), trade, and urbanization on GHG emissions in Malaysia from 1990 to 2020. Utilizing the Autoregressive Distributed Lag (ARDL) model, the results reveal that GDP and urbanization are positively correlated with GHG emissions in both the short and long run, in contrast, FDI and trade present mixed effects, while FDI negatively impacts GHG emissions in the long run, but trade is positively associated with emissions in the short run, driven by transportation and industrial activities. These findings provide evidence for the existence of the Environmental Kuznets Curve (EKC) hypothesis and Pollution Haven Hypothesis (PHH), as FDI is associated with increased emissions in the short run but contributes to reductions in the long run through technology transfer. Overall, the findings highlight the urgent need for Malaysia to implement sustainable policies that promote low-carbon technologies, enhance energy efficiency, and regulate urban growth to achieve a balance between economic development and environmental sustainability.