The Effect of Government Spending on Economic Growth in Malaysia

Yap, Lee Sin (2024) The Effect of Government Spending on Economic Growth in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

Policymakers and economists have debated the effects of government spending over the years, not only in Malaysia but also in other nations. This paper focused to investigate the impact of government spending on economic growth in Malaysia during 1990-2020 yearly. This paper utilizes different independent variables such as Labour (L), Development expenditure (DE), Trade openness (OPEN) and Real Gross Capital Formation (I) to examines the long run and short run relationship between economic growth. With regard to the goals of this task, this paper uses Original Least Square Regression (OLS), Autoregressive Distributed Lag (ARDL), Unit root test, Diagnostic test, and Stability test were applied to determine the impact of government spending on economic growth in Malaysia. The empirical result shows that there do not exist long run relationship between economic growth and independent variables. Other than that, there is short run relationship between economic growth and Real gross capital formation and trade openness lag 1. As a result, our government should create conducive environment in order to attract investors and established economic activity to increase worker participate in workforce.