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Natural Gas Consumption and Economic Growth: The Role of Foreign Direct Investment, Capital Formation and Trade Openness in Malaysia

Solarin, Sakiru Adebola and Shahbaz, Muhammad (2015): Natural Gas Consumption and Economic Growth: The Role of Foreign Direct Investment, Capital Formation and Trade Openness in Malaysia.

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Abstract

The objective of this paper is to reinvestigate the relationship between natural gas consumption and economic growth by including foreign direct investment, capital and trade openness in Malaysia for the period of 1971-2012. The structural break unit root test is employed to investigate the stationary properties of the series. We have applied combined cointegration test to examine the relationship between the variables in the long run. For robustness sake, the ARDL bounds testing method is also employed to test for possible of long run relationship in the presence of structural breaks. We note the validity of cointegration between the variables. Natural gas consumption, foreign direct investment, capital formation and trade openness have positive influence on economic growth in Malaysia. The results support the presence of feedback hypothesis between natural gas consumption and economic growth, foreign direct investment and economic growth, and natural gas consumption and foreign direct investment. The policy implications of these results are provided.

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