Analysing the Effect of Climate Change and Green Stocks on Economic Growth: Evidence from Indonesia and Malaysia

Sopira Qori Amalia; Suriani Suriani; Ernawati Ernawati

doi:10.56225/ijfeb.v3i2.297

Authors

Sopira Qori Amalia Department of Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Kopelma Darussalam, 23111 Syiah Kuala, Kota Banda Aceh, Aceh, Indonesia
Suriani Suriani Department of Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Kopelma Darussalam, 23111 Syiah Kuala, Kota Banda Aceh, Aceh, Indonesia
Ernawati Ernawati Department of Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Kopelma Darussalam, 23111 Syiah Kuala, Kota Banda Aceh, Aceh, Indonesia

DOI:

https://doi.org/10.56225/ijfeb.v3i2.297

Keywords:

Climate change, Economic growth, Green stock, Autoregressive Distributed Lag approach

Abstract

Contemporary economic growth shows a direct correlation between energy consumption and productivity. As economic development and technological advancements enhance living standards, the demand for natural resources and energy has concomitantly increased. This investigation examines the impact of climate change and green stocks on economic growth and the causal relationships among these variables in Indonesia and Malaysia over short- and long-term periods. Climate change has resulted in a downward trend in economic growth fluctuations, underscoring the necessity for green finance to mitigate the effects of climate change. The study employs the Autoregressive Distributed Lag (ARDL) model and Granger Causality test, analysing data on carbon emissions, green stocks, and gross domestic product from 2016-2022 (quarterly). The findings indicate that, in the short term, only green stocks positively influence economic growth in Indonesia and Malaysia. In the long run, climate change and green stocks positively affect economic growth in these countries. Economic growth demonstrates a unidirectional causal relationship with climate change, whereas climate change exhibits a unidirectional causal relationship with green stocks. This implies that green stock can mitigate climate change risks in Indonesia and Malaysia. It is recommended that the central bank consider implementing an environmentally sustainable financial system to promote economic growth.

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