Green Finance as a Growth Driver: Malaysia’s Transition to a Sustainable Economy

Abstract

As Malaysia advances toward a sustainable economy, green finance has become a key driver of growth and environmental resilience. This study analyses its impact on GDP via capital formation, labour market dynamics, and sustainability outcomes, using ARDL and ECM models on time-series data from 1982–2023. Forecasts for 2024–2044 assess projected growth under green finance policies and structural adjustments. Results show capital investment significantly boosts GDP, while labour force expansion yields limited gains without productivity improvements. Green technology adoption may cause short-term GDP declines due to transitional costs, but it enhances long-term resilience and industrial transformation. Malaysia’s robust adjustment mechanism mitigates temporary fluctuations, sustaining stability. To accelerate this shift, greater investment in green infrastructure, workforce upskilling, and targeted incentives is vital. Aligning financial systems with sustainability goals will reinforce Malaysia’s position as a regional green growth leader, securing both economic prosperity and environmental stewardship.