Innovation, financial development, foreign direct investment, renewable energy, and economic growth in Malaysia: Evidence from an ARDL bounds testing approach

Engineering solutions for sustainable energy systems require supportive innovation ecosystems, efficient financial systems, and sustained investment to achieve long-term economic and environmental objectives. However, limited evidence exists on how these factors jointly relate to economic growth in Malaysia. This study investigates the relationship among innovation, financial development, foreign direct investment (FDI), renewable energy, and real GDP per capita in Malaysia using annual data from 1990 to 2023. The Autoregressive Distributed Lag (ARDL) bounds testing approach is employed because it accommodates variables integrated at mixed orders and estimates both long-run equilibrium relationships and short-run dynamics. The bounds test confirms cointegration among the variables (F-statistic = 5.84). Long-run ARDL estimates indicate that innovation (β = 0.118, p = 0.002), financial development (β = 0.092, p = 0.032), and renewable energy (β = 0.067, p = 0.028) exhibit statistically significant positive relationships with real GDP per capita. Foreign direct investment also has a positive coefficient (β = 0.031), but the relationship provides only weak evidence at the 10% significance level (p = 0.095). The findings indicate that innovation, financial development, and renewable energy consumption have positive long-run relationships with real GDP per capita. These results provide evidence on the macroeconomic drivers of economic growth in Malaysia and offer policy insights relevant to the country's broader energy transition. However, environmental sustainability is not directly estimated in this study. Beyond macroeconomic policy implications, the findings provide engineering insights for renewable-energy infrastructure planning, smart-grid modernization, energy-storage deployment, and technology investment supporting Malaysia's National Energy Transition Roadmap. The findings provide several evidence-based policy implications. Malaysia should increase investment in research and development and in renewable energy innovation, expand green financial instruments and sustainable infrastructure financing, and accelerate renewable energy deployment through grid modernization and energy storage investment under the National Energy Transition Roadmap (NETR). Given the weaker evidence for aggregating FDI, policies should prioritize technology-intensive and clean-energy foreign investment rather than focusing solely on increasing FDI inflows. These findings provide empirical evidence to support renewable energy infrastructure planning and long-term economic growth in Malaysia.