MONETARY AND ENVIRONMENTAL POLICY INTERACTIONS IN MALAYSIA: IMPLICATION FOR TRADE
DOI:
https://doi.org/10.51200/mjbe.v12i2.7186Keywords:
Monetary Policy, Environemental Performance, Sustainnable Trade, ARDL Model, Ecological Modernization TheoryAbstract
This study examines the interactions between monetary and environmental policies in Malaysia and their combined impact on sustainable trade. Drawing on Ecological Modernization Theory (EMT), the research investigates whether macroeconomic tools such as interest rates and inflation can be effectively coordinated with environmental indicators like carbon emissions to promote trade openness. Using annual time-series data from 1990 to 2020 and applying the Autoregressive Distributed Lag (ARDL) approach, the study estimates both short-run and long-run relationships among trade openness, monetary variables (interest rate and inflation), macroeconomic indicators (GDP per capita and exchange rate), and environmental performance (CO₂ emissions). The results reveal the existence of a stable long-run cointegration relationship among the variables. In the long run, inflation is found to significantly reduce trade openness, whereas exchange rate depreciation and economic growth enhance trade integration. Moreover, CO₂ emissions exert a negative and statistically significant effect on trade openness, demonstrating that environmental sustainability has emerged as a critical determinant of international competitiveness. Short-run dynamics indicate that inflation and economic growth have immediate effects on trade activity, while environmental impacts operate primarily through long-term structural channels. The findings also highlight that trade openness, although beneficial for economic expansion, is associated with increased environmental pressure. These outcomes emphasize the importance of integrated policy mechanisms to balance economic competitiveness with environmental sustainability. By extending EMT to include monetary dimensions, this study contributes to a more holistic understanding of sustainable development policy and offers actionable insights for policymakers navigating Malaysia’s transition toward a low-carbon economy.
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