The Effect of Scale, Technique, Composition and Trade Openness on Energy Demand : Fresh Evidence from Malaysia

The aim of this paper utilizes an energy demand model to investigate the impact of trade openness on energy consumption by incorporating scale and technique, composition and urbanization effects in the case of Malaysia. The study covers the sample period of 1970-2011 using quarter frequency data. We applied the bounds testing approach in the presence of structural breaks to examine the long run relationship between the variables. The VECM Granger causality is used to detect the direction of causality between the variables. Our findings indicate that growth effect (scale and technique effect) has a positive (negative) impact on energy consumption whereas composition effect stimulates energy demand in Malaysia. Energy consumption is positively influenced by both from openness and urbanization. This study opens new policy insights for policy making authorities to articulate a comprehensive energy and trade policy to sustain economic growth and improve the environmental quality of Malaysia