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Abstract
The bounds test developed by Pesaran et al. (Citation2001) is applied to examine the existence of a long-run relationship between foreign direct investment (FDI) inflows, pollution and output of Malaysia. Granger causality tests are also utilized to test for the presence of the short-run and long-run causal relationship between these variables. Both FDI inflows and pollution have short-run causal relationship on output. Output only has long-run causal relationship on FDI inflows.