Reassessing the Impact of FDI and Trade Openness on Carbon Dioxide Emissions in Malaysia: An Environmental Kuznets Curve Approach

Abstract

Under the scope of the Environmental Kuznets Curve (EKC) hypothesis, this study undertakes an empirical investigation of the different dimensions influencing carbon dioxide (CO₂) emissions in Malaysia, including economic growth, foreign direct investment (FDI), trade openness (TO), and urbanization (URB), for the period from 2000 to 2022. The present study employs an Autoregressive Distributed Lag (ARDL) model to evaluate the short- and long-run relationships between the respective variables and the hidden environmental effects of growth in Malaysia. Existing studies favour the EKC theory, which reveals a U-shaped GDP-CO₂ emissions nexus, indicating that emissions fall whilst growth stays minimal, and rise whilst earnings improve. Urbanization is proven to be the key contributor towards the growth of CO₂ emissions which signifies the environmental burden of Malaya's massive urbanization development. FDI and TON contribute to emissions: FDI has a negative impact on emissions in both the short and the long term, while TON demonstrates a significant impact only in the long term. The results of this study can be useful for Malaysia in designing economically guided sustainable development strategies that do not undermine the environment.