Abstract
The main objectives of this paper are to investigate the relationship between trade flows and technological development with regard to environmental technologies, and estimate empirically the effect of renewable energy demand on the competitiveness of domestic manufacturing firms in Malaysia. By using a gravity model of international trade with a balanced dataset of 19 countries that have trade flows of renewable energy industries from Malaysia covering the period 2009-2017. The augmented gravity model shows that there is a positive evidence for the impact of environmental regulations on both the export of renewable energy industries and their competitiveness in Malaysia. Moreover, the results indicate that Porter hypothesis is valid, in this sense, CO2 emissions used as a proxy of environmental regulations, the results show that whenever the emission of CO2 in the destination countries decreases 1% the trade flows of renewable energy increases by 23.8% in Malaysia. The results indicate that if the competitive advantage increased in the destination country by 1 percent the trade flows of Malaysia will increase by 29.9 percent. The simulation model refers that the bilateral trade agreements between Malaysia and destination country could improve the trade flow by 32.2 percent. The policy recommends to expand the bilateral trade agreements with more countries (Brazil, Germany, and Mexico) that demand more renewable energy industries.
Highlights
Many economists would express their attitudes toward international trade in an even more positive manner
Many studies refer that the ordinary least squares (OLS) or Prais–Winsten estimates with panelcorrected standard error (PCSE) have coverage probabilities that are closer to nominal when the panels are between 10-20 with 10–40 periods per panel, the required models in this study are estimated using the procedure of the PCSE
The third model is representing the augmented gravity model, it is the main explanatory model since the objective of the study is to investigate, on the one hand, the relationship between trade flows of renewable energy industries and environmental regulation represented by CO2 emission and the demand of renewable energy in the destination countries, and on the other hand, to estimate the relationship between trade flows of renewable energy and the natural of competitive advantage in the destination countries
Summary
Many economists would express their attitudes toward international trade in an even more positive manner. By providing a bigger market, international trade allows producers to produce more cheaply, as producing a larger quantity usually lowers the costs. This aspect is important for all economies, small economies, as they will have to produce everything expensively, if they cannot trade and have a bigger market. Many countries around the world have prioritized the development of renewable energy technologies with a range of policies and incentives. The manufacturing of these technologies has grown rapidly in recent years. The emergence of several rapidly industrializing economies in these industries has led to an increasingly globalized supply chain, and an increase in the international trade of renewable energy technologies
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