Impact of urbanization growth on Malaysia CO2 emissions: Evidence from the dynamic relationship

Urbanization is a phenomenon of economic and social modernization. Investigating the link between urbanization growth and CO2 emissions is necessary and helpful for Malaysia to achieve its pollution reduction targets. Ecological modernization and augmented Cobb-Douglas production theories are used in order to gain the best understanding of interaction between CO2 emissions and urbanization for the 1971-2015 period. This study aims to examine the relationships among CO2 emissions, urbanization growth, energy consumption, GDP, domestic investment, and financial development. The F-bounds test and VECM Granger causality are utilized. The dynamic relationship among variables and the inverted U-shaped relationship between CO2 emissions and urbanization in the long run are examined. The elasticity of CO2 - urbanization is found positive elastic in the early stage of urbanization, but it turns to negative inelastic at the higher urbanization stage. Furthermore, the unidirectional causality from urbanization to CO2 emissions in the short run are at a 1 percent level of significance, and the bidirectional causality between CO2 emissions and urbanization is at a 5 percent level of significance in the long run. Also, we captured bidirectional causality among energy consumption, domestic investment, GDP, CO2 emissions, and unidirectional causality from financial development to CO2 emissions at least at a 5 percent level of significance. These findings could support policymakers in managing urbanization development and considering clean investment and other green aspects for urban sustainable development, which can save many people from natural disaster.