Trade, Economic Development and the Environment: Malaysian Experience

Abstract

The growth and structural transformation of the Malaysian economy over the last three decades has occurred within the framework of a liberal trade and investment regime as a small open economy. The environmental impact arises in the economy due to all goods and services produced are directly or indirectly associated with power and energy use (various petroleum oil, gas) and, according to the type of fuel utilized, with emissions as well. As trade and economic development are major factors in shaping the structure of Malaysian economy consequently, affecting countries’ energy use and various air emissions. Is there any trade-offs among energy use, environment and economic growth - in the Malaysian economy? This paper examines the Malaysian economy wide discharge implications of CO2, SO2 and NOx emissions of year 2000 and scenario projections for year 2020 using input-output analysis, which allows the calculation of emission effect in the exports-imports activities as well as throughout the economy. Following Fifth Fuel Diversification Strategy incorporated conversion efficiency until year 2020; our results show that the proposed fuel mix strategy would result in significantly higher CO2, SO2 and NOx emissions in the year 2020. This study is analytically important for rethinking of energy-mixed strategy and forecasted projections might be used to formulate Malaysian future environmental policy.

Keywords: Trade, Economic development, Energy, I-O analysis, Emission, Malaysia

JEL Classification: F49, N5, G1