Financial Development and Energy Consumption Nexus in Malaysia: A Multivariate Time Series Analysis

By S. M. Fakhrul Islam, Muhammad Shahbaz, Ashraf Ahmed, Md. Mahmudul Alam. 2019

646 citations recorded by the source corpus.

Despite a bourgeoning literature on the existence of a long-run relationship between energy consumption and economic growth, the findings have failed to establish clearly the direction of causation. A growing economy needs more energy, which is exacerbated by growing population. Evidence suggests that financial development can reduce overall energy consumption by achieving energy efficiency. Economic growth and energy consumption in Malaysia have been rising in tandem over the past several years. The three public policy objectives of Malaysia are: economic progress, population growth and financial development. It is of interest to the policymakers to understand the dynamic interrelation among the stated objectives. The paper implements Auto Regressive Distributed Lag (ARDL) approach to cointegration to examine the existence of a long-run relationship among the series: energy consumption, population, aggregate production, and financial development for Malaysia; and tests for Granger causality within the Vector Error Correction Model (VECM). The results suggest that energy consumption is influenced by economic growth and financial development, both in the short and the long-run, but the population-energy relation holds only in the long run. The findings have important policy implications for balancing economic growth vis-à-vis energy consumption for Malaysia, as well as other emerging nations.

Subfields: Economics and Econometrics, Pollution, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/9676a5ab10f80109bdeda1fef0a39fb73fa0c8f6

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Citations in the corpus

Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia (2011, background): “Similarly, energy literature such as Aqeel and Butt (2001) for Pakistan, Ghosh (2002) for India, Morimoto and Hope (2004) for Sri Lanka, Altinay and Karagol (2005) for Turkey, Ang (2008) for Malaysia, Bowden and Payne (2009) for USA, Halicioglu (2009) for Turkey, Odhiambo (2009) for Tanzania; posite”
Do FinTech trigger renewable energy use? Evidence from OECD countries (2021, methodology): “Islam et al. [23] investigate causal relationships using a Vector Error Correction Model (VECM) in Malaysia between 1971 and 2009.”
Financial Development, Environmental Quality, Trade and Economic Growth: What Causes What in MENA Countries (2015, background): “In addition to energy and trade, some of the recent studies such as Islam et al. (2013) and Ozturk and Acaravci (2013) have included financial financial development in the production function.”
The Moderating Effect of Institutional Quality on the Financial Development and Environmental Quality Nexus (2020, background): “Scholars [4,11,27] argue that financial development helps reduce environmental pollution for the following main reasons: (1) businesses are required to periodically update production technology and equipment in order to lessen production costs as well as improve the market competitiveness of product”
How strong is the causal relationship between globalization and energy consumption in developed economies? A country-specific time-series and panel analysis (2018, background): “…curve (EKC) hypothesis, we also find many recent studies that have extended the relationship between economic growth and energy consumption by incorporating financial development and urbanization into the energy demand function (Shahbaz and Lean 2012; Islam et al. 2013; Menegaki and Ozturk 2013).”