Energy consumption, CO2 emissions, foreign direct investment, and economic growth in Malaysia: an NARDL technique

Abstract

This study seeks to ascertain whether there is an unbalanced link between CO₂ emissions, foreign direct investment, and economic growth in Malaysia over a 40-year timeframe between 1980 and 2019. We investigated the asymmetric relationship , using non-linear autoregressive distributed lag (NARDL) technique. The findings showed a noteworthy asymmetry between FDI, CO₂ emissions, and GDP in Malaysia. The long-term and short-term effects of negative FDI on GDP are both equivalent to 0.028 and 0.021, respectively. This suggests that, compared to short-term fluctuations, long-term negative FDI adjustments have a considerably more negative impact on economic growth. The coefficient of positive (CO₂⁺) and negative (CO₂^-) changes in economic growth is equal to 0.086 and - 0.152, respectively. It indicates that positive changes in CO₂ emissions have stronger effects in the long run than negative shocks. Considering an asymmetric association between these two variables in the short and long term, Malaysian policymakers must comprehend the dynamic relationship between FDI, CO2 emissions, and GDP to plan appropriate economic and environmental policies that will support sustainable economic development and ensure a safer environment.

Keywords: CO2 emissions; Economic growth; Energy consumption; Foreign direct investment.