The impact of climate on economic growth in Malaysia

Tay, Guan Puay (2015) The impact of climate on economic growth in Malaysia. [Final Year Project Report] (Unpublished)

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Abstract

The study investigate the relationship between climate change and economic growth in Malaysia. The selected dependent variable is GDP (current LCU) while independent variables are Precipitation, Temperature and Arable land as well. The objective of this study is to assess the relationship between precipitation, temperature and arable land, which statistically significant to the GDP (current LCU). This study uses the annually time series data of GDP (current LCU), Precipitation (mm), Temperature (˚C) and Arable land (% of land used) from year 1983 to 2013. The methodologies that been employed in this study include the Augmented Dickey-Fuller (ADF) unit root test, Dickey-Fuller GLS (DF-GLS) unit root test, the Johansen- Juselius Cointegration test, Vector Error Correction Model (VECM) test, the Variance Decomposition (VDC) test and the Impulse Response Function (IRF) test. The empirical results implies that there is one cointegrating vectors between variables, which indicate that there is a unidirectional causality relationship between Precipitation, Temperature and Arable land towards GDP (current LCU) in long term. Furthermore, the Precipitation appears to be the most exogenous variable and Temperature appears to be the most endogenous variable at the 50 year horizon period. The IRF test concluded that majorities of the model are able to recover back within 5 years when response over time of a variable caused by the shock of another variable. Several policies have been recommended in this study that may be carried out by the Malaysian government to solve the currecncy climate crisis that may eventually be absorbed into the economic growth of Malaysia.

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