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The role of renewable energy to validate dynamic interaction between CO2 emissions and GDP toward sustainable development in Malaysia

Hussain Ali Bekhet and Nor Salwati Othman

Energy Economics, 2018, vol. 72, issue C, 47-61

Abstract: Closing the gap between economy activity and environmental quality is one of the solutions for reaching “sustainable development” in Malaysia. To do so, the cubic polynomial functional form of EKC is utilized by accommodating renewable energy into the base of the EKC model and validating its hypothesis between CO2 emissions and GDP growth for the 1971–2015 period. The F-bounds, VECM Granger causality, CUSUM, and CUSUMSQ tests are utilized. The estimated results consistently show that the inverted N-shaped EKC hypothesis holds in Malaysia. Ceteris paribus, the CO2 emissions will be declined when the GDP reach RM2841.9 billion in 2030, which is beyond the sample period. The renewable energy has a negative significant effect on CO2 emissions, and the direction of causality is running from CO2 emissions to renewable energy. Also, the GDP growth will be the remedy for environmental pollution problems and that renewable energy is one of important elements to be considered for improving environmental quality. A tighter and concentrated environmental policy is needed to direct the environment–economic growth nexus toward a downward trend. Consequently, these results may help Malaysian policymakers to establish an energy policy that guarantees a balance between economic growth and environmental prosperity.

Keywords: CO2 emissions; EKC; F-bound test; VECM granger causality; Renewable energy; Malaysia (search for similar items in EconPapers)
JEL-codes: C22 O13 O44 O53 Q48 Q56 (search for similar items in EconPapers)
Date: 2018
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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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