Exploring the Determinants of Economic Growth in Malaysia

Johnny, Ally Jenny (2025) Exploring the Determinants of Economic Growth in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study explores the key determinants of economic growth in Malaysia, focusing on foreign direct investment (FDI), export volume (EX), and school enrolment rates (SER) over the period 1994–2023. Using econometric techniques such as the Augmented Dickey-Fuller (ADF), Phillips-Perron (PP) tests, Johansen-Juselius cointegration, and the Vector Error Correction Model (VECM), the analysis reveals long-run relationships among the variables. FDI and SER demonstrate significant positive impacts on GDP growth, suggesting that capital inflows and human capital development are essential drivers of Malaysia’s economy. Export volume also contributes to growth, though its impact is influenced by global market volatility and reliance on primary commodities. Granger causality tests show short-term unidirectional causality from GDP to exports, indicating that economic expansion influences trade performance. However, no short-run causality is found between GDP and FDI or SER, suggesting their effects are more pronounced in the long term. Despite offering meaningful insights, the study faces limitations including a relatively short 30-year data span, exclusive use of VECM, reliance on a single data source, and omission of external shocks and government policies. To enhance future research, recommendations include expanding the dataset, employing diverse econometric models, incorporating policy variables, and using multi-source data. Policy recommendations urge the Malaysian government to promote FDI in high-growth sectors, invest in education, and diversify export markets. A holistic approach that balances growth with inclusivity and sustainability is essential for long-term development. Keywords: Malaysia, Foreign Direct Investment (FDI) ,Export Volume (EX) ,School Enrollment Rates (SER)