Natural gas consumption and economic growth: The role of foreign direct investment, capital formation and trade openness in Malaysia

Abstract

Abstract:The objective of this paper is to reinvestigate the relationship between natural gas consumption and economic growth by including foreign direct investment, capital and trade openness in Malaysia for the period of 1971-2012. The structural break unit root test is employed to investigate the stationary properties of the series. We have applied combined cointegration test to examine the relationship between the variables in the long run. For robustness sake, the ARDL bounds testing method is also employed to test for possible of long run relationship in the presence of structural breaks. We note the validity of cointegration between the variables. Natural gas consumption, foreign direct investment, capital formation and trade openness have positive influence on economic growth in Malaysia. The results support the presence of feedback hypothesis between natural gas consumption and economic growth, foreign direct investment and economic growth, and natural gas consumption and foreign direct investment. The policy implications of these results are provided.Keywords: Natural gas consumption, Economic growth, Causality 1. Introduction Natural gas already meets nearly a quarter of the world's energy demand, but recent innovations in exploration and production have made it possible to greatly expand gas supplies. Cleaner than coal and oil (because it generates 20% less emission than oil, and almost 50% less than coal), and more efficient and reliable than renewable energy, natural gas is an essential long-term answer to the world's energy and climate challenges [1]. Gas-fired power plants need less construction time than either nuclear facilities or coal-fired plants. This shorter construction time eases the process of investment decisions in many firms [1]. Given the rising importance of natural gas, many characteristics of this valuable resource have not been properly investigated in the economics literature [2]. The causal relationship between the consumption of natural gas and the economy is one of the areas that have received little attention. Very limited attempts have been made in the literature in this aspect and without a clear consensus among the researchers over the relationship between natural gas consumption and economic growth. Instead, significant part of the causality tests has focused on either aggregate energy consumption or electricity consumption with very vital policy implications [3]. For instance, unidirectional causality

Dynamics of the Natural Gas Industry and Economic Growth in Mozambique

“…The result of this study supports the hypothesis which states that natural gas industry and economic growth in Mozambique are cointegrated and they have a long-run relationship. This result is similar to results reported by [20] surveying OECD countries; [64] in Malaysia; and [24] in Tunisia. In Mozambique, the natural gas industry has a great influence on economic growth both in the short and long-run term, which means that economic growth is dependent on natural gas industry.…”

“…In a different country, [49] applied Bayer-Hank and Johansen cointegration tests and ARDL approach inspecting the relationship between economic growth and natural gas consumption in Malaysia from 1971 to 2012, and they report a unidirectional causality running from economic growth to natural gas consumption. However, [64] used a similar period and methodology for Malaysia and adding FDI, capital, and trade openness variables; and witnessed bidirectional causality between natural gas consumption and economic growth in Malaysia. In another Asian country, [36] discovered bidirectional causality between natural gas consumption and economic growth in Korea for the period 1991-2008, using GC and Johansen's maximum likelihood tests.…”

Does foreign direct investment impede environmental quality in high-, middle-, and low-income countries?

“…Also, foreign direct investment lowers energy demand if foreigners adopt advanced technology for production process otherwise foreign direct investment increases host economy's demand for energy. The existing empirical literature also exists that linked increase in per capita income or energy demand due to foreign direct investment and its relation with CO 2 emissions (Shahbaz and Leitão, 2012;Omri andKahouli, 2014b, Solarin andShahbaz, 2015).…”

Natural gas consumption and economic growth nexus: Is the 10th Malaysian plan attainable within the limits of its resource?

“…Apart from that Apergis and Payne [4] conducted their study on a panel of 67 countries, Kum et al [17] pursued a study which investigated the relationship between natural gas consumption and economic growth for the G7 countries, and Das et al [9] examined the causal relationship between the consumption of natural gas and GDP in Bangladesh. More recently, Solarin and Shahbaz [30] reinvestigate the relationship between natural gas consumption and economic growth by including foreign direct investment, capital and trade openness in Malaysia for the period of 1971-2012. In their study the authors discovered natural gas consumption, foreign direct investment, capital formation and trade openness to have positive influence on economic growth in Malaysia.…”