Title: Environmental quality, international trade and economic growth: the case of Malaysia

Authors: Ssekibaala Daaki Sadat; Fardous Alom

Addresses: Department of Economics, International Islamic University Malaysia, Jalan Gombak, Kuala Lumpur 50700, Malaysia ' Ministry of Civil Aviation and Tourism, Bangladesh Secretariat, Dhaka 1000, Bangladesh

Abstract: This paper examines the dynamic relationships between environmental quality, international trade and economic growth using annual data over the period of 1970-2011 for Malaysia. As such, we use GDP per capita and the square of GDP which we refer to as the scale and technique effect respectively, trade openness, energy consumption, composition effect and comparative advantage and CO₂ emissions is the environmental quality indicator. We employ autoregressive distributed lag (ARDL) bounds testing approach to examine long-run association as well as the quantile regression (QREG) approach to examine how the relationship at different conditional distributions of CO₂ emissions. ARDL results confirm the presence of long-run relationship. The scale effects are positive while technique effects are negative confirming the existence of an inverted U-shaped curve that provides evidence for environmental Kuznets curve (EKC) hypothesis for Malaysia. The turning point is estimated at around RM 27901.54 per capita. QREG results find the effect of CO₂ emissions significant in the 90th percentile and the turning point is estimated around RM 28189.9 which is slightly higher than the one estimated for ARDL. Trade and composition effects reduce CO₂ emissions which improves environmental quality while energy and comparative advantage increase CO₂ emissions worsening environmental quality. This study provides a more comprehensive analysis and the robust findings may provide a basis for policy makers in designing environmentally sustainable trade and economic policies.

Keywords: environmental quality; economic growth; international trade; EKC; environmental Kuznets curve; scale effect; technique effect; composition effect; Malaysia; GDP per capita; gross domestic product; trade openness; energy consumption; CO2; carbon dioxide; carbon emissions; ARDL bounds testing; environmental sustainability; sustainable development.

DOI: 10.1504/IJGE.2016.081904

International Journal of Green Economics, 2016 Vol.10 No.3/4, pp.302 - 326

Received: 02 May 2016
Accepted: 08 Dec 2016
Published online: 30 Jan 2017 *

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