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Decomposing the trade-environment nexus for Malaysia: what do the technique, scale, composition, and comparative advantage effect indicate?

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Abstract

This paper investigates the impact of trade openness on CO2 emissions using time series data over the period of 1970QI-2011QIV for Malaysia. We disintegrate the trade effect into scale, technique, composition, and comparative advantage effects to check the environmental consequence of trade at four different transition points. To achieve the purpose, we have employed augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests in order to examine the stationary properties of the variables. Later, the long-run association among the variables is examined by applying autoregressive distributed lag (ARDL) bounds testing approach to cointegration. Our results confirm the presence of cointegration. Further, we find that scale effect has positive and technique effect has negative impact on CO2 emissions after threshold income level and form inverted U-shaped relationship—hence validates the environmental Kuznets curve hypothesis. Energy consumption adds in CO2 emissions. Trade openness and composite effect improve environmental quality by lowering CO2 emissions. The comparative advantage effect increases CO2 emissions and impairs environmental quality. The results provide the innovative approach to see the impact of trade openness in four sub-dimensions of trade liberalization. Hence, this study attributes more comprehensive policy tool for trade economists to better design environmentally sustainable trade rules and agreements.

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Notes

  1. The pollution haven hypothesis argues that since developed countries have stringent environmental regulations, hence the disadvantaged firms relocate their pollution-intensive productions to developing countries where the regulations are soft.

  2. Later on, Khalid et al. (2014) confirmed the findings by Shahbaz et al. (2012b, c)

  3. Shahbaz et al. (2015c) examined the validity of EKC for African countries. Their analysis indicated the presence of EKC, and the feedback effect is noticed between economic growth and CO2 emissions.

  4. We have converted annual data into quarter frequency using quadratic match sum method (see, for more details, Shahbaz et al. 2014c).

  5. For more details, see (Pesaran et al. 1999, 2001)

  6. We have inserted dummy variable for each variable while considering it as dependent variable.

  7. We have not reported a stability test just to conserve space. The long-run and short-run models do not face the problem of non-normality, serial correlation, white heteroskedasticity, and functional form.

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Authors and Affiliations

  1. Institute of Postgraduate Studies, University of Malaya, Kuala Lumpur, Malaysia

    Chong Hui Ling

  2. Institute of Business Administration, Sukkur, Pakistan

    Khalid Ahmed

  3. Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia

    Rusnah Binti Muhamad

  4. Department of Management Sciences, COMSATS Institute of Information Technology, Lahore, Pakistan

    Muhammad Shahbaz

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  1. Chong Hui Ling
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  2. Khalid Ahmed
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  3. Rusnah Binti Muhamad
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  4. Muhammad Shahbaz
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Correspondence to Khalid Ahmed.

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Ling, C.H., Ahmed, K., Binti Muhamad, R. et al. Decomposing the trade-environment nexus for Malaysia: what do the technique, scale, composition, and comparative advantage effect indicate?. Environ Sci Pollut Res 22, 20131–20142 (2015). https://doi.org/10.1007/s11356-015-5217-9

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