Investigation of the environmental Kuznets curve for carbon emissions in Malaysia: Do foreign direct investment and trade matter?

Environmental degradation has become a central issue of discussion among the economists and environmentalists. In view of Malaysia's position as one of the main contributors to CO2 emissions in Asia and its status as a fast growing economy, it is vital, therefore, to conduct a study to identify the relationship between economic growth and CO2 emissions for Malaysia. This study attempts to examine empirically the environmental Kuznets curve hypothesis for Malaysia in the presence of foreign direct investment and trade openness both in the short- and long-run for the period 1970 to 2008.The bounds testing approach and Granger causality methodology are applied to test the interrelationships of the variables. The results of our study indicate that the inverted-U shaped relationship does exist between economic growth and CO2 emission in both the short- and long-run for Malaysia after controlling for two additional explanatory variables, namely FDI and trade. Importantly, the results of the study also provide some crucial policy recommendations to the policy makers.