The impacts of transport energy consumption, foreign direct investment and income on CO2 emissions in ASEAN-5 economies

Abstract

In this study, we incorporate new variables and assess the impact of transportation sector's energy consumption and foreign direct investment on CO2 emissions for ASEAN-5 economies using the cointegration and Granger causality methods. This study also attempts to validate the Environmental Kuznets Curve (EKC) hypothesis. Our results reveal that the CO2 emissions and their determinants are co-integrated only in Indonesia, Malaysia and Thailand. The long-run elasticity estimation suggests that income and transport energy consumption significantly influence CO2 emissions whereas FDI is not significant. Economic growth plays a greater role in contributing to CO2 emission in ASEAN-5. Nonetheless, we find that the inverted U-shape EKC hypothesis is not applicable to the ASEAN-5 economies, especially in Indonesia, Malaysia and Thailand. In the long run, the bi-directional causality between economic growth and CO2 emissions is detected in Indonesia and Thailand, while we find unidirectional causality running from GDP to CO2 emissions in Malaysia. We also observe bi-directional causality between transport energy consumption, FDI and CO2 emissions in Thailand and Malaysia. As an immediate policy option, controlling energy consumption in transportation sector may result in a significant reduction in CO2 emissions. However, this may slow the process of economic growth in Malaysia and Indonesia. Alternatively, we suggest policymakers to place more emphasis on energy efficient transportation system and policies to minimise fossil fuel consumption. Thus, the quality of environment can be improved with less deleterious impact on economic growth.