Impact of Government Expenditure towards Economic Growth in Malaysia

Lim, Jia Xin (2021) Impact of Government Expenditure towards Economic Growth in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

Over the decades, the impact of government expenditure has been discussed among the policy makers and economist, not only Malaysia, but other countries as well. Among the research, government health expenditure and government education expenditure are one of the most popular topic. There are plenty of result which included positive and negative impact and even uncertain impact. This paper is aimed to examine the impact of government expenditure towards economic growth in Malaysia during year 1999-2020, on a quarterly basis. The dependent variable is Gross domestic product while independent variables is government operating expenditure, government healthcare expenditure, government education expenditure, government agriculture expenditure and government infrastructure expenditure. Vector Error Correction Model (VECM), Johansen-Juselius co-integration test and Granger Causality test were applied to determine the impact of government expenditure towards economic growth in Malaysia. The empirical result shows that there is long run relationship among the variables. Operating and health expenditure is positively related with GDP while education, agriculture and infrastructure is negatively related to GDP. In this study, there are few unilateral and bilateral relationship among the variables. In this study, it is suggested that the government should expand their expenditure in the operating and healthcare sector.