Abstract
This paper investigates how government spending (GSE) affects the environmental quality proxy by CO2 emissions in Malaysia over the 1978–2020 period. For that purpose, the STIRPAT model in the EKC framework are applied. The F-bounds test is applied to assess the cointegration relationship's existence. The ARDL model is used to measure the short-run and long-run environmental elasticities, and the VECM Granger causality is used to estimate the direction of the causality relationship. Empirical results show a cointegration relationship among environmental quality, GDP, population, and Malaysia's GSE. The findings provide strong support for Malaysia's EKC presence, and the GSE significantly contributes to reducing environmental sustainability. The results show the short-run unidirectional Granger causality running from CO2 emissions, GDP, and population to GSE at the 1 percent significance levels. Also, this study reveals the long-run unidirectional Granger causality running from CO2 emissions and population to GSE and GDP at least at 10 percent significance level; and the bidirectional causality between GSE and GDP at least at 10 percent significance level as well. The result implies that the increasing demand for regulatory and protective functions represented by GSE are needed to sustain the increasing level of economic wealth, environment, and communities.Keywords: Environmental Sustainability, EKC, Government Spending, Dynamic Relationship, Causality, MalaysiaJEL Classifications: O1, O2, Q5DOI: https://doi.org/10.32479/ijeep.11273
Highlights
Since the early 1990s, economists and environmentalists have extensively investigated economic growth and environmental quality
The Intergovernmental Panel on Climate Change (IPCC) indicates the necessary steps to reduce the amount of Greenhouse Gas (GHG) emissions, CO2 emissions, by 40–70% compared to a decade ago
Othman and Bekhet: Dynamic Effects of Malaysia’s Government Spending on Environment Quality: Bridging STIRPAT and Environmental Kuznets Curve (EKC) Hypothesis instance, the escalation of GDP is paired with the disruption of environmental pollution represented by CO2 emissions sequentially becoming a burden to environmental sustainability
Summary
Since the early 1990s, economists and environmentalists have extensively investigated economic growth and environmental quality. Othman and Bekhet: Dynamic Effects of Malaysia’s Government Spending on Environment Quality: Bridging STIRPAT and EKC Hypothesis instance, the escalation of GDP is paired with the disruption of environmental pollution represented by CO2 emissions sequentially becoming a burden to environmental sustainability. Theoretical Background Generally, the Malaysia GSE was allocated for two significant purposes: operation purposes and development purposes (Bekhet and Othman, 2012) The rationale behind this policy was to upgrade and improve productivity and impede long-term economic growth potential. This study intends to contribute to the existing literature by first investigating the existence of a dynamic relationship between CO2 emissions (proxy to environment quality) and GSE. Othman and Bekhet: Dynamic Effects of Malaysia’s Government Spending on Environment Quality: Bridging STIRPAT and EKC Hypothesis Figure 4: CUSUM and CUSOMSQ curves tests. All data are obtained from the World Development Indicator (WDI), issued by the “World Bank.” Table 1 presents the details of the variables
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