Disaggregated energy demand by fuel type and economic growth in Malaysia

We use an augmented production function approach to examine the relationship between disaggregated energy consumption by fuel type and economic growth in Malaysia. The main finding is that diesel is the major contributor to economic growth in the long run in Malaysia. The long run elasticity for diesel is 0.4, which is similar to our finding for total energy consumption. The problem for Malaysia is that diesel is a major cause of acidification and greenhouse emissions and that Malaysia’s reserves of oil are depleting. The results for diesel suggest that the challenge moving forward for Malaysia will be to replace diesel with cleaner biodiesel alternatives, while not adversely affecting Malaysia’s current high rate of economic growth. The prospects for so doing, and measures taken thus far in Malaysia, are discussed.