Economic and environmental effects of trade liberalization in Malaysia

Malaysia is among the relatively more open economies in Asia. Many economic and environmental effects resulting from trade liberalization are cause of caution for more open economies like Malaysia. This study, by applying a computable general equilibrium, investigates the economic and environmental effects resulting from trade liberalization on Malaysia. It uses 2005 social accounting matrix as the main database in the model. By considering tariff reforms, this study concluded that 50 and 100 % trade liberalization, respectively, lead to 0.06 and 0.13 % increase in real gross domestic product and 0.6 and 1.29 % increase in trade flows. Therefore, greater liberalization leads to a greater increase in the overall real GDP and Malaysian trade flows. The 50 and 100 % tariff reforms also increase rural household consumption, respectively, by 0.45 and 0.92 % leading to an increase in their welfare by 0.49 and 1.01 %. There is such a situation for other household groups. Moreover, we found that both tariff reforms would lead to greater reduction in poverty gap and poverty severity (by 4.8 and 7.8 %, respectively) in urban households in comparison with other household groups. Results indicate that emissions of four more local air pollutants, (i.e., particular matter, CO, SO2 and NO x ) are predicted to decrease, respectively, by 12, 11, 11 and 12 % as a result of trade liberalization, while emission of carbon dioxide, as a global air pollutant, increases by 0.14 %. Results also suggest that the environmental impacts will be considerably greater, if the rate of tariff will be lower than the current rates.