Institutional regulations, environmental degradation and green GDP in Malaysia

• Main Author: Cheah, Chan Fatt
• Format: Thesis
• Language: English
• Published: 2019
• Subjects: Gross domestic product - Malaysia; Economic policy; Environmental economics - Case studies
• Online Access: http://psasir.upm.edu.my/id/eprint/89877/1/SPE%202020%208%20-%20ir.pdf; http://psasir.upm.edu.my/id/eprint/89877/

Malaysia currently uses the gross domestic product (GDP) as the measurement of national income. However, when measured alone, GDP is limited because it only represents the final monetary value of goods or services. Measuring Green GDP can help to address this shortcoming because it considers the environmental impacts. Malaysia has the aim of becoming a high-income economy, one way this can be achieved is through the growth of green industries and by using Green GDP to promote higher economic growth. Conventional GDP fails to take into account the external costs like pollution, deforestation, and mineral exploitation. Nature the implantation of government legislation determines the impact felt by society, which all have detrimental public health consequences. High levels of these problems result in higher average health expenditure. Based on the issues described, this research contains several objectives. The first objective is to investigate the relationship between the quality of regulation and external costs. Effective regulatory procedures are essential to manage and reduce external costs that are shown to cause health issues in society. Therefore, this research second objective is to examine the impact of external costs on health expenditure. Finally, this study investigates the environmental impacts of Green GDP, and conventional GDP are compared and discussed. The quality of regulatory processes plays an essential role in controlling environmental problems. If external costs are reduced, it leads to a reduction in overall health expenditure. The Environmental Kuznets Curve (EKC) states that increases in income levels initially leads to an increase in pollution. By using the EKC hypothesis, it is probable that Green GDP is an appropriate measure of environmental impact and economic development in Malaysia. Autoregressive Distributed Lag (ARDL) is used to investigate the impact for the first and the second objective. The first objective investigates the impact of the regulatory quality to external costs. However, for the second objective, external costs are an independent variable that determines the impact on health expenditure. Lastly, the third objective employs a Nonlinear ARDL (NARDL) model to test the EKC hypothesis by employing GDP and Green GDP as a proxy for income. The data contained information from 1980 to 2017 and was sourced from World Development Indicators (WDI) (2018). When regulatory quality increases, it leads to a reduction in external costs. This reduction in external costs is essential to achieve green or sustainable growth. Increases in carbon dioxide (CO2) emissions also have detrimental external costs. Secondly, when there was an increase in external costs, personal healthcare expenditure will also be increased. Increased external costs and CO2 emissions show a positive correlation with health expenditure. For the environmental aspect, when GDP and Green GDP both used as a proxy for income, there are similar impact on CO2 emissions. However, energy consumption and trade can lead to an increase in CO2 emissions. In general, incorporating Green GDP into the policy-making process results in a healthier environment compared to solely relying on conventional GDP. If Green GDP used effectively in Malaysia, then Green GDP can promote sustainable growth through the improvement of institutions and the promotion of zero pollution strategies. The results show that external cost in Malaysia leads to increase in the health expenditure. Policymakers should act to reduce these external costs and promote a better living environment. Lastly, it is proven that using GDP or Green GDP are no different in term of CO2 emission in Malaysia. Therefore, it is time for Malaysia to use Green GDP as a measurement for national income to help achieve the goal of green growth.