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Dynamic Effects of Malaysia's Government Spending on Environment Quality: Bridging STIRPAT and EKC Hypothesis

Author

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  • Nor Salwati Othman

    (College of Business and Accounting, Universiti Tenaga Nasional, Malaysia,)

  • Hussain Ali Bekhet

    (College of Graduate Studies, Universiti Tenaga Nasional, Kajang, Selangor, Malaysia)

Abstract

This paper investigates how government spending (GSE) affects the environmental quality proxy by CO2 emissions in Malaysia over the 1978 2020 period. For that purpose, the STIRPAT model in the EKC framework are applied. The F-bounds test is applied to assess the cointegration relationship s existence. The ARDL model is used to measure the short-run and long-run environmental elasticities, and the VECM Granger causality is used to estimate the direction of the causality relationship. Empirical results show a cointegration relationship among environmental quality, GDP, population, and Malaysia s GSE. The findings provide strong support for Malaysia s EKC presence, and the GSE significantly contributes to reducing environmental sustainability. The results show the short-run unidirectional Granger causality running from CO2 emissions, GDP, and population to GSE at the 1 percent significance levels. Also, this study reveals the long-run unidirectional Granger causality running from CO2 emissions and population to GSE and GDP at least at 10 percent significance level; and the bidirectional causality between GSE and GDP at least at 10 percent significance level as well. The result implies that the increasing demand for regulatory and protective functions represented by GSE are needed to sustain the increasing level of economic wealth, environment, and communities.

Suggested Citation

  • Nor Salwati Othman & Hussain Ali Bekhet, 2021. "Dynamic Effects of Malaysia's Government Spending on Environment Quality: Bridging STIRPAT and EKC Hypothesis," International Journal of Energy Economics and Policy, Econjournals, vol. 11(5), pages 343-355.
    • Handle: RePEc:eco:journ2:2021-05-38
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    More about this item

    Keywords

    Environmental Sustainability; EKC; Government Spending; Dynamic Relationship; Causality; Malaysia;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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