Decoding climate change dynamics in Malaysia: Analysing energy, economic growth, foreign direct investment, and oil prices interplay

Abstract

As a prominent CO2 producer in Southeast Asia, Malaysia is taking steps to mitigate carbon emissions amid its rapid economic expansion. However, there remains a limited understanding of the complex relationships among various factors such as domestic credit (DRC), energy consumption, green technology policy (GTP), oil prices (OPs), and FDI in shaping CO2 emissions. This study addresses this gap by examining both symmetric and asymmetric impacts of these factors—FDI, renewable and non‐renewable energy consumption, OP, GTP, DRC, and gross domestic products (GDP)—on CO2 emissions in Malaysia, considering both short and long‐term effects. Our research, which combines block exogeneity causation with ARDL and non‐linear ARDL cointegration approaches, spans data from 1980 to 2021 and provides several significant discoveries. This study provides support for the Environmental Kuznets curve hypothesis, highlighting the intricate balance between economic growth and environmental conservation. The symmetric findings reveal that factors such as high GDP, FDI, renewable energy consumption, and OP tend to increase emissions, while GTP and DRC have a mitigating effect on CO2 levels over both short and long periods. Moreover, FDI and OP show positive associations with CO2 emissions across various timeframes, whereas non‐renewable energy consumption displays a negative correlation with CO2 emissions. These findings have significant implications for Malaysia's environmental policies and strategies.