Environmental Science and Pollution Research

, Volume 26, Issue 33, pp 34468–34478 | Cite as

Moderating role of financial development in environmental Kuznets: a case study of Malaysia

  • Abid Rashid GillEmail author
  • Sallahuddin Hassan
  • Muhammad Haseeb
Research Article


This research article aims to investigate the moderating role of financial development in Environmental Kuznets Curve (EKC) in the context of Malaysia for the period 1970–2016. As the time series variables are integrated of different order therefore, Auto-Regressive Distributed Lag (ARDL) model has been employed to estimate the long-run equilibrium relationship among the variables. The results indicate that EKC does exist for Malaysia and financial development has negative impact on carbon emission. Moreover, financial development is found to have significant moderating impact on income environment relation. More financial development brings early turning point of the EKC. The results recommend that financial development can be used as one of the policy measures to reduce the environmental cost of economic growth in Malaysia.


EKC Financial development Economic growth 



  1. Abid M (2017) Does economic, financial and institutional developments matter for environmental quality? A comparative analysis of EU and MEA countries. J Environ Manag 188:183–194Google Scholar
  2. Al Sayed AR, Sek SK (2013) Environmental Kuznets curve: evidences from. Appl Math Sci 7(22):1081–1092Google Scholar
  3. Apergis N, Ozturk I (2015) Testing environmental Kuznets curve hypothesis in Asian countries. Ecol Indic 52:16–22Google Scholar
  4. Arrow K, Bolin B, Costanza R, Dasgupta P, Folke C, Holling CS et al (1995) Economic growth, carrying capacity, and the environment. Ecol Econ 15(2):91–95Google Scholar
  5. Aslanidis N (2009) Environmental Kuznets Curves for Carbon Emissions: A Critical Survey. Working Paper No 51. Spain: University of TeramoGoogle Scholar
  6. Aubourg RW, Good DH, Krutilla K (2008) Debt, democratization, and development in Latin America: how policy can affect global warming. J Pol Anal Manag 27(1):7–19Google Scholar
  7. Beckerman W (1992) Economic growth and the environment: whose growth? Whose environment? World Dev 20(4):481–496Google Scholar
  8. Begum RA, Sohag K, Abdullah SMS, Jaafar M (2015) CO2 emissions, energy consumption, economic and population growth in Malaysia. Renew Sust Energ Rev 41:594–601Google Scholar
  9. Bradford DF, Schlieckert R, & Shore SH (2000) The environmental Kuznets curve: exploring a fresh specification (No. w8001). National Bureau of Economic ResearchGoogle Scholar
  10. Brown RL, Durbin J, & Evans JM (1975) Techniques for testing the constancy of regression relationships over time. Journal of the Royal Statistical Society: Series B (Methodological) 37(2):149-163Google Scholar
  11. Chow GC, Li J (2014) Environmental Kuznets curve: conclusive econometric evidence for CO2. Pac Econ Rev 19(1):1–7Google Scholar
  12. Chowdhury RR, Moran EF (2012) Turning the curve: a critical review of Kuznets approaches. Appl Geogr 32(1):3–11Google Scholar
  13. Claessens S, Feijen E (2007) Financial sector development and the millennium development goals. World Bank Working Paper No. 89Google Scholar
  14. Cole MA, Elliott RJ (2005) FDI and the capital intensity of “dirty” sectors: a missing piece of the pollution haven puzzle. Rev Dev Econ 9(4):530–548Google Scholar
  15. Costantini V, Martini C (2010) A modified environmental Kuznets curve for sustainable development assessment using panel data. Int J Glob Environ Issues 10(1):84–122Google Scholar
  16. Dasgupta S, Laplante B, Mamingi N (2001) Pollution and capital markets in developing countries. J Environ Econ Manag 42(3):310–335Google Scholar
  17. Dasgupta S, Hamilton K, Pandey KD, Wheeler D (2006) Environment during growth: accounting for governance and vulnerability. World Dev 34(9):1597–1611Google Scholar
  18. Dickey DA, & Fuller WA (1981) Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: Journal of the Econometric Society :1057–1072Google Scholar
  19. Dinda S (2004) Environmental Kuznets curve hypothesis: a survey. Ecol Econ 49(4):431–455Google Scholar
  20. Engle R, Granger C (2001) Co-integration and error-correction: representation, estimation, and testing. Econ Soc Monogr 33:145–172Google Scholar
  21. Fodha M, Zaghdoud O (2010) Economic growth and pollutant emissions in Tunisia: an empirical analysis of the environmental Kuznets curve. Energy Policy 38(2):1150–1156Google Scholar
  22. Gill AR, Viswanathan KK, & Hassan S (2018) The Environmental Kuznets Curve (EKC) and the environmental problem of the day. Renewable and Sustainable Energy Reviews 81:1636–1642Google Scholar
  23. Gill AR, Viswanathan KK, & Hassan S (2018) A test of environmental Kuznets curve (EKC) for carbon emission and potential of renewable energy to reduce green house gases (GHG) in Malaysia. Environment, development and sustainability 20(3):1103–1114Google Scholar
  24. Grossman, Krueger (1995) Economic environment and the economic growth. Q J Econ 110(2):353–377Google Scholar
  25. Jalil A, Feridun M (2011) The impact of growth, energy and financial development on the environment in China: a cointegration analysis. Energy Econ 33(2):284–291Google Scholar
  26. Johansen S (1995) Likelihood-based inference in cointegrated vector autoregressive models. Oxford University Press, OxfordGoogle Scholar
  27. Katircioğlu ST, Taşpinar N (2017) Testing the moderating role of financial development in an environmental Kuznets curve: empirical evidence from Turkey. Renew Sust Energ Rev 68:572–586Google Scholar
  28. Kwiatkowski D, Phillips PC, Schmidt P, Shin Y (1992) Testing the null hypothesis of stationarity against the alternative of a unit root: how sure are we that economic time series have a unit root? J Econ 54(1-3):159–178Google Scholar
  29. Lau L-S, Choong C-K, Eng Y-K (2014) Investigation of the environmental Kuznets curve for carbon emissions in Malaysia: do foreign direct investment and trade matter? Energy Policy 68:490–497Google Scholar
  30. Lee J-M, Chen K-H, Cho C-H (2016) The relationship between CO2 emissions and financial development. The Singapore Economic Review 60(5):1550117Google Scholar
  31. MacKinnon JG (1990) “Critical Values for Cointegration Tests”. Canada: Department of Economics, Queen’s University Google Scholar
  32. Managi S, Jena PR (2008) Environmental productivity and Kuznets curve in India. Ecol Econ 65(2):432–440Google Scholar
  33. Nasreen S, Anwar S, Ozturk I (2017) Financial stability, energy consumption and environmental quality: evidence from South Asian economies. Renew Sust Energ Rev 67:1105–1122Google Scholar
  34. Ozturk I, Acaravci A (2013) The long-run and causal analysis of energy, growth, openness and financial development on carbon emissions in Turkey. Energy Econ 36:262–267Google Scholar
  35. Panayotou T (1993) Empirical tests and policy analysis of environmental degradation at different stages of economic development (No. 992927783402676). International Labour OrganizationGoogle Scholar
  36. Panayotou T (1995) Environmental degradation at different stages of economic development, Beyond Rio: the environmental crises and sustainable livelihoods in the Third World. Macmillan Press, LondonGoogle Scholar
  37. Pesaran MH, Shin Y (1998) An autoregressive distributed-lag modelling approach to cointegration analysis. Econ Soc Monogr 31:371–413Google Scholar
  38. Pesaran MH, Shin Y, Smith RJ (2001) Bounds testing approaches to the analysis of level relationships. J Appl Econ 16(3):289–326Google Scholar
  39. Phillips PC, Hansen BE (1990) Statistical inference in instrumental variables regression with I (1) processes. Rev Econ Stud 57(1):99–125Google Scholar
  40. Raymond L (2004) Economic growth as environmental policy? Reconsidering the environmental Kuznets curve. J Public Policy 24(03):327–348Google Scholar
  41. Saboori B, Sulaiman J (2013) Environmental degradation, economic growth and energy consumption: evidence of the environmental Kuznets curve in Malaysia. Energy Policy 60:892–905Google Scholar
  42. Saboori B, Sulaiman J, Mohd S (2012) Economic growth and CO 2 emissions in Malaysia: a cointegration analysis of the environmental Kuznets curve. Energy Policy 51:184–191Google Scholar
  43. Sadorsky P (2010) The impact of financial development on energy consumption in emerging economies. Energy Policy 38(5):2528–2535Google Scholar
  44. Sadorsky P (2011) Financial development and energy consumption in Central and Eastern European frontier economies. Energy Policy 39(2):999–1006Google Scholar
  45. Shafik N (1994) Economic development and environmental quality: an econometric analysis. Oxford economic papers 46(4):757–774Google Scholar
  46. Shafik N, Bandyopadhyay S (1992) Economic growth and environmental quality: time-series and cross-country evidence, vol 904. World Bank Publications, Washington, DC.Google Scholar
  47. Shahbaz M, Lean HH (2012) Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia. Energy Policy 40:473–479Google Scholar
  48. Shahbaz M, Hye QMA, Tiwari AK, Leitão NC (2013) Economic growth, energy consumption, financial development, international trade and CO2 emissions in Indonesia. Renew Sust Energ Rev 25:109–121Google Scholar
  49. Stern DI (2004) The rise and fall of the environmental Kuznets curve. World Dev 32(8):1419–1439Google Scholar
  50. Tamazian A, Rao BB (2010) Do economic, financial and institutional developments matter for environmental degradation? Evidence from transitional economies. Energy Econ 32(1):137–145Google Scholar
  51. Tamazian A, Chousa JP, Vadlamannati KC (2009) Does higher economic and financial development lead to environmental degradation: evidence from BRIC countries. Energy Policy 37(1):246–253Google Scholar
  52. Vollebergh HRJ, Dijkgraaf E, Melenberg E (2005) Environmental Kuznets curves for CO2: Heterogeneity versus homogeneity. Center Discussion Paper 2005-25, University of TilburgGoogle Scholar
  53. Yuxiang K, Chen Z (2011) Financial development and environmental performance: evidence from China. Environ Dev Econ 16(1):93–111Google Scholar
  54. Zainuddin A (2017) Malaysia to slash another 25% of CO2 emission by 2030. The Malaysia Reserve Retrieved from
  55. Zhang Y-J (2011) The impact of financial development on carbon emissions: an empirical analysis in China. Energy Policy 39(4):2197–2203Google Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of EconomicsThe Islamia University of Bahawalpur (IUB)BahawalpurPakistan
  2. 2.School of Economics, Finance and BankingUniversiti Utara MalaysiaSintok 06010, KedahMalaysia
  3. 3.Taylor’s Business School (TBS)Taylor’s University Lakeside campus, 1 Jalan TaylorsSubang JayaMalaysia

Personalised recommendations