Determinants of Economic Growth in Malaysia

Lim, Eng Yang (2023) Determinants of Economic Growth in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

Text Lim Eng Yang_Full Report.pdf Restricted to Registered users only Download (751kB)

Abstract

The aim of this research is to explore the factors influencing economic growth in Malaysia. In this paper, we investigate the short-run, long-run, and causality relationship between government spending, inflation, foreign direct investment, and economic growth in Malaysia. We utilize annual time series data spanning from 1970 to 2021. In this research, Gross Domestic Product (GDP) expressed as a percentage serves as the dependent variable, with government spending (GOV), inflation (INF), and foreign direct investment in trade (FDI) as the independent variables. To achieve these objectives, the study employs the Augmented Dickey Fuller (ADF) and Phillips–Perron tests for assessing unit roots. Subsequently, it utilizes the Johansen cointegration test to examine the cointegration relationships among these variables. Additionally, the Vector Error Correction Model (VECM) and Granger causality test are applied to scrutinize the connections between these variables over both the short and long run. The findings suggest a negative relationship between government spending and economic growth, while inflation and foreign direct investment are positively associated with economic growth in the long run. Lastly, there is a unidirectional causality from inflation to GDP in Malaysia.