The moderating role of Malaysian and Indonesian palm oil production in the carbon emissions-income nexus

Beh, Soon Kian and Chai, Jian Liang and Lim, Weizhe (2025) The moderating role of Malaysian and Indonesian palm oil production in the carbon emissions-income nexus. Final Year Project, UTAR.

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Abstract

This study is to examine whether the Environmental Kuznets Curve (EKC) hypothesis exist in Malaysia and Indonesia, and the palm oil production moderate the relationship between economic growth and CO2 emission in Malaysia and Indonesia. Our dependent variable is carbon dioxide emission per year. The independent variables are GDP and palm oil production, and our control variables are primary energy consumption, trade and foreign direct investment. By applying the ARDL approach, our results reveal two notable findings. First, the EKC hypothesis is not supported in Malaysia due to increasing scale of industrialization in higher income level. while it is supported in Indonesia due to adoption of more environment friendly technologies when economy further grows. Second, palm oil production reduces CO2 emissions but the interaction terms between palm oil production and GDP bring positive impact to CO2 emissions. Therefore, this study suggests that palm oil production does not moderate the impact of economic development on environmental degradation. When economy continues to grow, the increasing scale of industrialization on palm oil production leads to higher emissions. Malaysia is suggested that government can provide supports in terms of loan and adopt tracking technologies, while Indonesia can invest in technologies that can convert palm oil residues to bioenergy to support EKC hypothesis. For our second findings, sustainable palm oil practices and technologies based on palm oil are suggested for both countries.

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