ABSTRACT
In this modern era, the global warming issue has been on the front burner of almost all countries including Malaysia. This study utilizing time series data spanning from 1970 to 2018. To this end, a linear and nonlinear autoregressive distributed lag model was conducted to reveal the foreign direct investment-growth-environment nexus. The conclusion validates the existence of the pollution haven hypothesis in Malaysia. Specifically, the empirical results of the linear autoregressive distributed lag model indicate that foreign direct investment and real gross domestic product have a significant positive impact on CO2 emission while carbon damage cost and the interaction term of foreign direct investment and carbon damage cost have a negative impact in the long run and short run. To find the asymmetric behavior of the foreign direct investment our study employed a nonlinear autoregressive distributed lag model. The findings confirmed the asymmetry association of foreign direct investment with CO2 emission. Interestingly, our results of the interaction term in both models are significant with a negative sign that shows the mediating effect of carbon damage cost that converts the positive effect of foreign direct investment on CO2 emission to negative. Thus, it is vital to reinforce the use of significant regulation as the Malaysian economy opens up to attract more foreign direct investment.
