Economic growth and CO ₂ emissions in Malaysia: A cointegration analysis of the Environmental Kuznets Curve

This paper attempts to establish a long-run as well as causal relationship between economic growth and carbon dioxide (CO ₂) emissions for Malaysia. Using data for the years from 1980 to 2009, the Environmental Kuznets Curve (EKC) hypothesis was tested utilizing the Auto Regressive Distributed Lag (ARDL) methodology. The empirical results suggest the existence of a long-run relationship between per capita CO ₂ emissions and real per capita Gross Domestic Product (GDP) when the CO ₂ emissions level is the dependent variable. We found an inverted-U shape relationship between CO ₂ emissions and GDP in both short and long-run, thus supporting the EKC hypothesis. The Granger Causality test based on the Vector Error Correction Model (VECM) presents an absence of causality between CO ₂ emissions and economic growth in the short-run while demonstrating uni-directional causality from economic growth to CO ₂ emissions in the long-run.